CONNECTICUT MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Connecticut Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term
Connecticut municipal securities, including securities of states,
territories, and possessions of the United States which are not issued by or
on behalf of Connecticut, or its political subdivisions and financing
authorities, but which provide current income exempt from federal regular
income tax and Connecticut Dividend and Interest Income Tax consistent with
stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Connecticut Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
Management of the Fund 7
Distribution of Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
FINANCIAL STATEMENTS 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
25
ADDRESSES 26
</TABLE>
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.29%
12b-1 Fee None
Total Other Expenses 0.31%
Shareholder Services Fee (after waiver)(2) 0.14%
Total Operating Expenses(3) 0.60%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.92% absent the voluntary
waiver of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Fund Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $6 $19 $33 $75
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONNECTICUT MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 25.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993** 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 0.05
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05)
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(b) 3.02% 3.31% 2.12% 1.96% 2.68% 4.04% 5.54%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.60% 0.60% 0.59% 0.57% 0.56% 0.56% 0.48%*
Net investment income 2.97% 3.26% 2.11% 1.95% 2.66% 3.94% 5.32%*
Expense
waiver/reimbursement(c) 0.32% 0.30% 0.18% 0.25% 0.30% 0.21% 0.28%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $227,089 $184,718 $190,423 $140,446 $140,118 $140,113 $138,738
</TABLE>
* Computed on an annualized basis.
** Prior to November 6, 1992, the Fund provided two classes of shares.
(a) Reflects operations for the period from November 1, 1989 (date of
initial public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The Fund is designed primarily for
financial institutions acting in an agency or fiduciary capacity as a
convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term municipal securities. The Fund may not be
a suitable investment for retirement plans or for non-Connecticut taxpayers
because it invests in municipal securities of that state. A minimum initial
investment of $25,000 over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and Connecticut Dividend and Interest Income Tax
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
complying with the diversification and other requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds
and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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
Connecticut Dividend and Interest Income Tax. (Federal regular income tax
does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated
otherwise, the investment policies may be changed by the Board of 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 Connecticut and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and Connecticut Dividend and Interest Income Tax
("Connecticut Municipal Securities"). Examples of Connecticut Municipal
Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Connecticut
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Connecticut 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture,
the Fund may invest in tax-exempt or taxable securities, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Connecticut Municipal Securities is subject to the federal alternative
minimum tax.
CONNECTICUT MUNICIPAL SECURITIES
Connecticut Municipal Securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Connecticut Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Connecticut 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 Connecticut Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 Connecticut 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 Connecticut Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in Connecticut 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 Connecticut 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 Connecticut 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. Due to
these risk considerations, the Fund's concentration in Connecticut Municipal
Securities may entail a greater level of risk than other types of money
market funds.
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 not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933. These investment limitations cannot be changed without shareholder
approval. The following limitation may be changed without shareholder
approval. 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.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of the Institutional Service Shares, computed at an
annual rate, to obtain certain personal services for shareholders
and to maintain shareholder accounts. From time to time, and for such
periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities from the value
of Fund assets, and dividing the remainder by the number of 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $10,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Connecticut Municipal Cash Trust -- Institutional Service Shares; Fund
Number (this number can be found on the account statement or by contacting
the Fund); Group Number or Order Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Connecticut Municipal Cash
Trust -- Institutional Service Shares. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received), and shares begin earning
dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Shareholder Services
Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Under
limited circumstances, arrangements may be made with the distributor for
same-day payment of proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that method
of payment has cleared. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company, or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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, within the limits of its investment
policies, 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
Connecticut. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
CONNECTICUT TAXES. Under existing Connecticut laws, distributions made by
the Fund will not be subject to Connecticut individual income taxes to the
extent that such distributions qualify as exempt interest dividends under
the Internal Revenue Code, and represent (i) interest on obligations issued
by the State of Connecticut, any political subdivision thereof or public
instrumentality, state or local authority, district, or similar public
entity created under the laws of the State of Connecticut, and (ii) interest
on obligations the income of which may not, by federal law, be taxed by a
state, such as bonds issued by the government of Puerto Rico. Conversely, to
the extent that the distributions made by the Fund are derived from other
types of obligations, such dividends will be subject to Connecticut
individual income taxes.
Distributions from the Fund to a shareholder subject to the Connecticut
corporation business tax are not eligible for the dividends received
deduction under the Connecticut corporation business tax and therefore are
included in the taxable income of a taxpayer to the extent such
distributions are treated as either exempt-interest dividends or capital
gains dividends for federal income tax purposes. All other distributions
from the Fund are eligible for the Connecticut corporation business tax
dividends received deduction.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
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 the Fund's tax-exempt yield, assuming a
specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
CONNECTICUT MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 99.4%
CONNECTICUT -- 92.0%
$ 2,000,000 Brookfield, CT, 3.73% BANs, 6/12/1997 $ 2,000,352
6,933,170 (b)Clipper Connecticut Tax Exempt Trust, (Series 1994-1)
Weekly VRDNs (State Street Bank and Trust Co. LIQ) 6,933,170
2,400,000 Connecticut Development Authority, Weekly VRDNs (Banta
Associates)/(Marine Midland Bank N.A., Buffalo, NY LOC) 2,400,000
4,000,000 Connecticut Development Authority, Weekly VRDNs (Capital
District Energy Center)/(Canadian Imperial Bank of Commerce,
Toronto LOC) 4,000,000
700,000 Connecticut Development Authority, Weekly VRDNs (Capital District
Energy Center)/(Canadian Imperial Bank of Commerce, Toronto LOC) 700,000
1,319,200 Connecticut Development Authority, Weekly VRDNs
(RSA Corp.)/(Barclays Bank PLC, London LOC) 1,319,200
930,000 Connecticut Development Authority, (Series 1985) Weekly
VRDNs (Martin-Brower Company Project)/(ABN AMRO Bank
N.V., Amsterdam LOC) 930,000
2,200,000 Connecticut Development Authority, (Series 1986) Weekly VRDNs
(United Illuminating Co.)/(Union Bank of Switzerland, Zurich LOC) 2,200,000
8,000,000 Connecticut Development Authority, (Series 1993) Weekly VRDNs
(Rand-Whitney Containerboard Limited Partnership)/(Chase
Manhattan Bank N.A., New York LOC) 8,000,000
11,000,000 Connecticut Development Authority, (Series A) Weekly VRDNs
(Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) 11,000,000
1,000,000 Connecticut Development Authority, (Series B) Weekly VRDNs
(Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
7,499,000 Connecticut Development Authority, (Series C) Weekly VRDNs
(Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) 7,499,000
5,000,000 Connecticut Development Authority, PCR (Series 1993A) Weekly
VRDNs (Connecticut Light & Power Co.)/(Deutsche Bank, AG LOC) 5,000,000
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
CONNECTICUT -- CONTINUED
$ 9,500,000 Connecticut Development Authority, PCR (Series 1993A) Weekly
VRDNs (Western Mass Electric Co.)/(Union Bank of Switzerland,
Zurich LOC) $ 9,500,000
5,200,000 Connecticut Development Authority, Water Facilities Revenue
Bonds (Series 1995) Weekly VRDNs (Bridgeport Hydraulic Co.)/
(Societe Generale, Paris LOC) 5,200,000
1,000,000 Connecticut Development Health Care Facilities Weekly VRDNs
(Independence Living)/(Chase Manhattan Bank N.A., New York LOC) 1,000,000
5,300,000 Connecticut Development Health Care Facilities Weekly VRDNs
(Independence Living)/(Credit Local de France LOC) 5,300,000
4,000,000 Connecticut Municipal Electric Energy Cooperative, Power Supply
System Revenue Bonds (1995 Series A), 3.30% CP (Fleet National
Bank, Providence, RI LOC), Mandatory Tender 11/18/1996 4,000,000
6,700,000 Connecticut Municipal Electric Energy Cooperative, Power Supply
System Revenue Bonds (1995 Series A), 3.40% CP (Fleet National
Bank, Providence, RI LOC), Mandatory Tender 11/18/1996 6,700,000
1,700,000 Connecticut State HEFA Weekly VRDNs (Charlotte Hungerfield
Hospital)/(First National Bank of Boston, MA LOC) 1,700,000
3,600,000 Connecticut State HEFA, (Series A) Weekly VRDNs (Forman School
Issue)/(National Westminster Bank, PLC, London LOC) 3,600,000
3,875,000 Connecticut State HEFA, (Series L), 3.50% CP (Yale University),
Mandatory Tender 11/8/1996 3,875,000
2,900,000 Connecticut State HEFA, (Series M), 3.35% CP (Yale University),
Mandatory Tender 12/10/1996 2,900,000
1,000,000 Connecticut State HEFA, (Series N), 3.35% CP (Yale University),
Mandatory Tender 12/10/1996 1,000,000
5,500,000 Connecticut State HEFA, (Series N), 3.70% CP (Yale University),
Mandatory Tender 1/15/1997 5,500,000
4,000,000 Connecticut State HEFA, (Series P), 3.35% CP (Yale University),
Mandatory Tender 12/10/1996 4,000,000
9,950,000 Connecticut State HEFA, 3.55% CP (Windham Community
Memorial Hospital)/(Banque Paribas, Paris LOC), Mandatory
Tender 11/14/1996 9,950,000
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
CONNECTICUT -- CONTINUED
$ 1,000,000 Connecticut State HEFA, Revenue Bonds (Series A) Weekly VRDNs
(Pomfret School Issue)/(Credit Local de France LOC) $ 1,000,000
4,255,000 (b)Connecticut State HFA, (PT-81) Weekly VRDNs (Rabobank
Nederland, Utrecht LIQ) 4,255,000
7,130,000 Connecticut State HFA, (Series 1990C), 3.65% CP (Morgan Guaranty
Trust Co., New York LIQ), Mandatory Tender 2/14/1997 7,130,000
3,245,000 Connecticut State HFA, (Series 1990D), 3.65% CP, Mandatory
Tender 1/13/1997 3,245,000
3,100,000 Connecticut State HFA, (Series 1990D), 3.65% CP, Mandatory
Tender 12/13/1996 3,100,000
10,000,000 Connecticut State HFA, (Series A-4), 3.65% TOBs, Mandatory
Tender 4/10/1997 10,000,000
1,500,000 Connecticut State Transportation Infrastructure Authority Weekly
VRDNs (Connecticut State)/(Commerzbank AG, Frankfurt LOC) 1,500,000
4,925,000 Connecticut State, (1996 Series A), 4.00% Bonds, 5/15/1997 4,935,210
12,000,000 Connecticut State, Special Assessment Unemployment Compensation
Advance Fund, Revenue Bonds (Series 1993C), 3.90% TOBs
(FGIC INS)/(FGIC Securities Purchase, Inc. LIQ), Mandatory
Tender 7/1/1997 12,000,000
1,160,000 East Hartford, CT, UT GO, 6.00% Bonds (MBIA INS), 1/15/1997 1,165,685
10,100,000 Hartford, CT Redevelopment Authority Weekly VRDNs (Underwood
Towers)/(FSA INS)/(Barclays Bank PLC, London LIQ) 10,100,000
1,575,000 Meriden, CT, (Series A), 4.25% BANs, 2/13/1997 1,577,444
7,550,000 New Britain, CT, 3.52% BANs, 4/15/1997 7,550,648
1,000,000 New Britain, CT, 3.65% BANs, 4/15/1997 1,000,000
1,600,000 New Haven, CT Weekly VRDNs (Starter Sportswear)/(Fleet Bank,
N.A. LOC) 1,600,000
7,000,000 New Haven, CT, 4.00% BANs (Fleet National Bank, Providence,
R.I. LOC), 5/22/1997 7,009,427
6,000,000 Seymour, CT, 3.65% BANs, 1/21/1997 6,000,651
942,500 Southeastern CT Water Authority, 3.50% GANs, 3/20/1997 943,020
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
CONNECTICUT -- CONTINUED
$ 7,500,000 Stamford, CT Housing Authority, Multi-Modal Interchangeable Rate
Revenue Bonds (Series 1994) Weekly VRDNs (Morgan Street Project)/
(Deutsche Bank, AG LOC) $ 7,500,000
Total 208,818,807
PUERTO RICO -- 7.4%
2,000,000 Puerto Rico Electric Power Authority, (Series K), 9.375% Bonds
(United States Treasury PRF), 7/1/1997 (@102) 2,112,587
5,000,000 Puerto Rico Government Development Bank, 3.60% CP, Mandatory
Tender 12/12/1996 5,000,000
5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 12/12/1996 5,000,000
2,300,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1988),
3.40% CP (Inter American University of Puerto Rico)/(Bank of Tokyo-
Mitsubishi Ltd. LOC), Mandatory Tender 11/20/1996 2,300,000
2,500,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental
Control Finance Authority, (Series 1994A), 3.80% CP (Inter American
University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory
Tender 1/14/1997 2,500,000
Total 16,912,587
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 225,731,394
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 30.6% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security rated by multiple NRSROs in different rating categories should
be identified as a First or Second Tier security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
97.34% 2.66%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $11,188,170 which represents 4.9% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($227,088,743) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GANs -- Grant Anticipation Notes
HEFA -- Health and Education Facilities Authority
HFA -- Housing Finance Authority
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
PRF -- Prerefunded
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 225,731,394
Cash 553,562
Income receivable 1,336,457
Receivable for shares sold 11,448
Total assets 227,632,861
LIABILITIES:
Payable for shares redeemed $ 104,469
Income distribution payable 375,547
Accrued expenses 64,102
Total liabilities 544,118
Net Assets for 227,088,830 shares outstanding $ 227,088,743
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$227,088,743 / 227,088,830 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,035,591
EXPENSES:
Investment advisory fee $ 1,125,360
Administrative personnel and services fee 170,171
Custodian fees 31,063
Transfer and dividend disbursing agent fees and expenses 33,669
Directors'/Trustees' fees 3,051
Auditing fees 12,561
Legal fees 7,068
Portfolio accounting fees 57,364
Shareholder services fee 562,680
Share registration costs 27,414
Printing and postage 7,444
Insurance premiums 5,225
Taxes 4,246
Miscellaneous 1,610
Total expenses 2,048,926
Waivers
Waiver of investment advisory fee $(468,496)
Waiver of shareholder services fee (236,580)
Total waivers (705,076)
Net expenses 1,343,850
Net investment income $ 6,691,741
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 6,691,741 $ 6,931,149
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (6,691,741) (6,931,149)
SHARE TRANSACTIONS --
Proceeds from sale of shares 636,539,589 522,140,169
Net asset value of shares issued to shareholders in payment of
distributions declared 2,096,326 1,971,315
Cost of shares redeemed (596,265,388) (529,816,470)
Change in net assets resulting from share transactions 42,370,527 (5,704,986)
Change in net assets 42,370,527 (5,704,986)
NET ASSETS:
Beginning of period 184,718,216 190,423,202
End of period $ 227,088,743 $ 184,718,216
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONNECTICUT MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Connecticut Municipal Cash
Trust (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The investment objective of the fund is current income exempt from federal
regular income tax and Connecticut Dividend and Interest Income Tax consistent
with stability of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Trust's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Fund
will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <S> <C>
Clipper Connecticut
Tax Exempt Trust 5/6/94-8/16/96 6,933,170
Connecticut State
HFA 6/13/96 4,255,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
At October 31, 1996, capital paid-in aggregated $227,088,743.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
Shares sold 636,539,589 522,140,169
Shares issued to shareholders in
payment of distributions declared 2,096,326 1,971,315
Shares redeemed (596,265,388) (529,816,470)
Net change resulting from share transactions 42,370,527 (5,704,986)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to .50% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and
reimburse certain operating expenses of the Fund. The Adviser can modify
or terminate this voluntary waiver and reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to .25% of average daily net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ,
through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee
paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS - During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $267,630,000 and $267,230,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 60% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 8.6% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Connecticut Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Connecticut Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996 and the related statement of
operations for the year then ended the statement of changes in net assets
and the financial highlights (see page 2 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Connecticut Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
Connecticut Municipal Cash Trust
Institutional Service 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
CONNECTICUT MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End, Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229105
9101004 A-SS (12/96)
CONNECTICUT MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Connecticut Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314229105
9101004B-SS (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
CONNECTICUT INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 2
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustees Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
CONNECTICUT INVESTMENT RISKS
The Fund invests in obligations of Connecticut issuers which results in the
Fund's performance being subject to risks associated with the overall
conditions present within Connecticut (the `State''). The following
information is a brief summary of the recent prevailing economic conditions
and a general summary of the State's financial status. This information is
based on official statements related to securities that have been offered
by Connecticut issuers and from other sources believed to be reliable but
should not be relied upon as a complete description of all relevant
information.
Based on per capita income, Connecticut is the wealthiest of all the
states. The State's exceptional wealth and resources are its primary
source of credit strength.
Connecticut's economy is largely composed of service industries (such as
insurance and finance), retail and wholesale trade, and manufacturing
(concentrated in defense and transportation). In addition, the State is
headquarters for some major corporations and insurance firms. All of these
sectors were adversely impacted with the national recession in the early
1990's. Between 1988 and 1992, Connecticut lost 9% of its total
employment. The State has experienced a slight recovery, however at a
slower pace than the nation. It is expected that a slower economic climate
will persist in the near future.
Connecticut has a very high level of tax-supported debt. It ranks highest
among all states in terms of debt per capita, as well as debt service as a
percentage of revenues. In addition to tax-supported debt, Connecticut
also has a large unfunded pension liability, and a large unfunded liability
in its state managed, second injury, workers compensation program.
The Fund's concentration in securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the State or its municipalities to meet their obligations will depend on
the availability of tax and other revenues; economic, political, and
demographic conditions within the State; and the underlying fiscal
condition of the State and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings
in excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings.
In those cases, it may pledge assets having a market value not exceeding
the lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of the pledge.
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
non-governmental user are considered to be issued solely by that user. If
in the case of an industrial 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 nonpublicly issued Connecticut municipal securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in
real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities, if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry, or in industrial development bonds or other securities the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN 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 notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Connecticut Municipal Cash Trust-
Institutional Service Shares: Fleet Securities Corp. owned approximately
54,506,278 shares (21.50%); and First Union National Bank owned
approximately 38,619,525 shares (15.24%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996, 1995, and 1994, the adviser earned
$1,125,360, $1,064,090, and $961,837, respectively, of which $468,496,
$400,553, and $337,400, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995 and
1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996,
1995, and 1994, the Administrators earned $170,171, $161,103, and $198,789,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will
benefit by: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending October 31,1996, the Fund paid Shareholder
Services fees in the amount of $562,680, of which $236,580 was waived.
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.
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.
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, 1996, the yield for
Institutional Service Shares was 2.93%.
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, 1996, the effective yield for
Institutional Service Shares was 2.97%.
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 44.10% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yield
for Institutional Service Shares was 5.24%,
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 1996
STATE OF CONNECTICUT
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE: 19.50% 32.50% 35.50% 40.50% 44.10%
JOINT $1 - $40,101 - $96,901 - $147,701 OVER
RETURN: 40,100 96,900 147,700 263,750 $263,750
SINGLE $1 - $24,001 - $58,151 - $121,301 - OVER
RETURN: 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD
EQUIVALENT
----------------------------
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
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.
For the one-year and five-year periods ended October 31, 1996 and for the
period from November 1, 1989 (date of initial public investment) through
October 31, 1996, the average annual total returns were 3.02%, 2.62% and
3.23%, respectively, for Institutional Service Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
PROSPECTUS
The Cash Series Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
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
federal regular income tax and personal income taxes imposed by the Commonwealth
of Pennsylvania consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Cash Series Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 12
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33
- ------------------------------------------------------
ADDRESSES 34
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CASH SERIES SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)........................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)........................................................................ 0.28%
12b-1 Fee (after waiver) (2)............................................................................. 0.35%
Total Other Expenses..................................................................................... 0.42%
Shareholder Services Fee................................................................. 0.25%
Total Operating Expenses (3)................................................................... 1.05%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The 12b-1 Fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate this voluntary waiver at
any time at its sole discretion. The maximum 12b-1 fee is 0.40%.
(3) The Total Operating Expenses would have been 1.32% absent the voluntary
waivers of portions of the management fee and 12b-1 fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Cash Series Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by this section.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................ $11 $33 $58 $128
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.03
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ----------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 2.75% 3.02% 1.84% 1.83% 2.67% 3.55%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%*
- -----------------------------------------
Net investment income 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%*
- -----------------------------------------
Expense waiver/
reimbursement (c) 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $19,825 $28,255 $18,352 $18,561 $24,694 $19,846
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established three classes of shares known as Cash Series Shares,
Institutional Shares and Institutional Service Shares. This prospectus relates
only to Cash Series Shares of the Fund, which are designed primarily for the
retail customers of financial institutions as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term
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 $10,000 over 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
- --------------------------------------------------------------------------------
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
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 Pennsylvania dividend and
interest income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 ("Pennsylvania Municipal Securities"). Examples of
Pennsylvania Municipal Securities include, but are not limited to:
tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
bond anticipation notes 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 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund and
affect its share price. The Fund may have more than 25% of its total assets
invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in tax-exempt or taxable securities, all of comparable quality to other
securities in which the Fund invests, 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 depository institutions 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).
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. Due to the risk considerations the Fund's
concentration in Pennsylvania Municipal Securities may entail a greater level of
risk than other types of money market funds.
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 not invest more than 10% of its
net assets in securities subject to restrictions on resale under the Securities
Act of 1933. These investment limitations cannot be changed without shareholder
approval.
The following limitation may be changed without shareholder approval. 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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interests. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Trustees, and could result in severe
penalties.
DISTRIBUTION OF CASH SERIES SHARES
Federated Securities Corp. is the principal distributor for Cash Series Shares
of the Fund. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the distributor may be paid a fee by the Fund in an amount computed at
an annual rate of up to .40% of the average daily net asset value of the Fund.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Trust Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to .25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholders Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions may receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund 's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate as which relates to the average aggregate daily net assets of all
funds advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash Series
Shares from the value of Fund assets attributable to Cash Series Shares, and
dividing the remainder by the number of Cash Series 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares
through a financial institution which has a sales agreement with the
distributor. Orders are considered
received when the Fund receives payment by wire or converts payment by check
from the financial institution into federal funds. It is the financial
institution's responsibility to transmit orders promptly. Financial institutions
may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling 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) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Federated
Municipal Trust--Cash Series Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to Federated Municipal Trust Cash Series
Shares. Please include an account number on the check. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received), and shares begin
earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Services Company receives
the redemption request. According to the shareholder's instructions, redemption
proceeds can be sent to the financial institution or to the shareholder by check
or by wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution for
this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests before 12:00 noon
(Eastern time) 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, but
will not include that day's dividend. Proceeds from redemption requests received
after that time include that day's dividend but will be wired the following
business day. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Proceeds from
redemption requests received on holidays when wire transfers are restricted will
be wired the following business day. Questions about telephone redemptions on
days when wire transfers are restricted should be directed to your shareholder
services representative at the telephone number listed on your account
statement. Under limited circumstances, arrangements may be made with the
distributor for same-day payment of proceeds, without that day's dividend, for
redemption requests received before 2:00 p.m. (Eastern time). Proceeds from
redeemed shares purchased by check or through ACH will not be wired until that
method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank
responsible for administering the check writing program, for payment. However,
checks should never be made payable or sent to UMB Bank, N.A. or the Fund to
redeem shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$10,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of December 2, 1996, BHC Securities, Inc., Philadelphia, Pennsylvania owned
30.57% of the voting securities of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
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, within the limits of its investment policies, 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
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Fund would be subject to such taxes if owned directly by residents of
those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the
Fund derived from interest on obligations free from state taxation in
Pennsylvania are not subject to Pennsylvania personal income taxes.
Distributions made by the Fund will be subject to Pennsylvania personal income
taxes to the extent that they are derived from gain realized by the Fund from
the sale or exchange of otherwise tax-exempt obligations.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes of shares called Institutional Shares and
Institutional Service Shares. Institutional Shares are sold at net asset value
primarily to financial institutions acting in a fiduciary or agency capacity and
are subject to a minimum initial investment of $25,000 over a 90-day period.
Institutional Service Shares are sold at net asset value primarily to financial
institutions acting in an agency capacity and are subject to a minimum initial
investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 fees but are subject to
shareholder services fees.
Institutional Service Shares are distributed with no 12b-1 fees but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.03 0.01
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.01)
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 3.37% 1.03%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.45% 0.45%*
- -------------------------------------------------------------------------------------------
Net investment income 3.27% 3.81%*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.47% 0.46%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$37,076 $2,529
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.05
- --------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05)
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%*
- --------------------------------------
Net investment income 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%*
- --------------------------------------
Expense waiver/ reimbursement (c) 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%*
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period (000
omitted) $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882
- --------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 21, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--99.4%
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--99.4%
-----------------------------------------------------------------------------------
$ 7,000,000 Allegheny County, PA HDA, Hosp. Revenue Bonds (Series B 1995) Weekly VRDNs
(Allegheny General Hospital)/(Morgan Guaranty Trust Co., New York LOC) $ 7,000,000
-----------------------------------------------------------------------------------
1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,300,000 Allegheny County, PA IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank,
N.A. LOC) 1,300,000
-----------------------------------------------------------------------------------
6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/ (Barclays Bank PLC,
London LOC), Mandatory Tender 2/21/1997 6,500,000
-----------------------------------------------------------------------------------
4,850,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly
VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,850,000
-----------------------------------------------------------------------------------
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power
Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/7/1996 5,000,000
-----------------------------------------------------------------------------------
5,000,000 Allegheny County, PA Port Authority, (Series A), 3.90% GANs (PNC Bank, N.A. LOC),
6/30/1997 5,000,000
-----------------------------------------------------------------------------------
3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.65% CP (Toledo Edison
Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/10/1996 3,000,000
-----------------------------------------------------------------------------------
4,000,000 Bedford County, PA IDA, IDRB's (Series 1985) Weekly VRDNs (Sepa, Inc.
Facility)/(Banque Paribas, Paris LOC) 4,000,000
-----------------------------------------------------------------------------------
1,210,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 1,210,000
-----------------------------------------------------------------------------------
1,245,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 1,245,000
-----------------------------------------------------------------------------------
1,900,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics,
Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
$ 1,865,000 Berks County, PA IDA, Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,865,000
-----------------------------------------------------------------------------------
450,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 450,000
-----------------------------------------------------------------------------------
1,165,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 1,165,000
-----------------------------------------------------------------------------------
1,425,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs
(Lebanon Valley Mall Co.)/(Corestates Bank, Reading, PA LOC) 1,425,000
-----------------------------------------------------------------------------------
4,000,000 Berks County, PA, (Series 1996), 4.50% TRANs, 12/31/1996 4,003,152
-----------------------------------------------------------------------------------
2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 2,445,000
-----------------------------------------------------------------------------------
2,835,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 2,835,000
-----------------------------------------------------------------------------------
4,500,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Corestates
Bank N.A., Philadelphia, PA LOC) 4,500,000
-----------------------------------------------------------------------------------
3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd,
Osaka LOC) 3,000,000
-----------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd,
Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/ (Chase Manhattan
Bank N.A., New York LOC) 1,400,000
-----------------------------------------------------------------------------------
5,500,000 Butler County, PA IDA, First Mortgage Revenue Bonds, 10.125% Bonds (St. John
Lutheran Care Center)/(United States Treasury PRF),
10/1/1997 (@102) 5,915,633
-----------------------------------------------------------------------------------
$ 2,385,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company,
Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 2,385,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/ (ABN AMRO Bank N.V.,
Amsterdam LOC) 2,400,000
-----------------------------------------------------------------------------------
1,700,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank,
N.A. LOC) 1,700,000
-----------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 2/19/1997 5,000,000
-----------------------------------------------------------------------------------
6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.65% CP (Panther Creek)/(National
Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 6,825,000
-----------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995B), 3.90%
RANs (Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York
LOC), 12/3/1996 5,000,000
-----------------------------------------------------------------------------------
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC) 7,300,000
-----------------------------------------------------------------------------------
8,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.80%
TOBs (International Paper Co.), Optional Tender
1/15/1997 8,000,000
-----------------------------------------------------------------------------------
3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon
Bank NA, Pittsburgh LOC) 3,000,000
-----------------------------------------------------------------------------------
5,000,000 Coatsville, PA School District, 4.25% TRANs, 6/30/1997 5,007,912
-----------------------------------------------------------------------------------
5,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 5,025,704
-----------------------------------------------------------------------------------
1,500,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs
(Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,500,000
-----------------------------------------------------------------------------------
3,000,000 Delaware County Authority, PA, Hospital Revenue Bonds (Series of 1996) Weekly VRDNs
(Crozer-Chester Medical Center)/(Kredietbank N.V., Brussels LOC) 3,000,000
-----------------------------------------------------------------------------------
$ 6,500,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia Electric Co.)/(FGIC
INS), Mandatory Tender 1/8/1997 $ 6,500,000
-----------------------------------------------------------------------------------
1,805,000 Downington Area School District, (Series A), 4.00% Bonds, 3/1/1997 1,806,703
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight
System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,900,000
-----------------------------------------------------------------------------------
5,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Mellon
Bank NA, Pittsburgh LOC) 5,800,000
-----------------------------------------------------------------------------------
400,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000
-----------------------------------------------------------------------------------
325,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank,
N.A. LOC) 325,000
-----------------------------------------------------------------------------------
500,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 500,000
-----------------------------------------------------------------------------------
1,600,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor,
Inc.)/(PNC Bank, N.A. LOC) 1,600,000
-----------------------------------------------------------------------------------
400,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City
Bank, Cleveland, OH LOC) 400,000
-----------------------------------------------------------------------------------
1,155,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank,
N.A. LOC) 1,155,000
-----------------------------------------------------------------------------------
1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC
Bank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------
2,670,000 Hampton Township, PA School District, 4.19% TRANs, 6/30/1997 2,671,520
-----------------------------------------------------------------------------------
2,700,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates
Bank N.A., Philadelphia, PA LOC) 2,700,000
-----------------------------------------------------------------------------------
2,200,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995)
Weekly VRDNs (Franklin and Marshall College Project) 2,200,000
-----------------------------------------------------------------------------------
1,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel
Co.)/(KeyBank, N.A. LOC) 1,356,092
-----------------------------------------------------------------------------------
$ 1,000,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly
VRDNs (Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,000,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,800,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC
Bank, N.A. LOC) 2,800,000
-----------------------------------------------------------------------------------
5,000,000 Luzerne Co, PA, 3.85% TRANs, 12/31/1996 5,001,183
-----------------------------------------------------------------------------------
1,650,000 Marple Township, PA, (Series 1996), 4.25% TRANs, 12/31/1996 1,651,697
-----------------------------------------------------------------------------------
790,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford
Manor, Inc.)/(PNC Bank, N.A. LOC) 790,000
-----------------------------------------------------------------------------------
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd,
Osaka LOC) 3,300,000
-----------------------------------------------------------------------------------
1,070,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly
VRDNs (Pottstown Healthcare Corporation Project)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,070,000
-----------------------------------------------------------------------------------
2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal
Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,600,000
-----------------------------------------------------------------------------------
1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited
Partnership)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000
-----------------------------------------------------------------------------------
1,635,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts
Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,635,000
-----------------------------------------------------------------------------------
4,975,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/ (ABN AMRO Bank N.V.,
Amsterdam LOC) 4,975,000
-----------------------------------------------------------------------------------
7,000,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond (Series
1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 7,000,000
-----------------------------------------------------------------------------------
3,500,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson
Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 3,500,000
-----------------------------------------------------------------------------------
3,250,000 Norristown, PA, (Series 1996), 3.75% TRANs, 12/31/1996 3,250,000
-----------------------------------------------------------------------------------
$ 9,000,000 Northampton County, PA IDA, 3.70% CP (Citizens Utilities Co.), Mandatory Tender
2/13/1997 $ 9,000,000
-----------------------------------------------------------------------------------
3,850,000 Northampton County, PA IDA, 3.80% CP (Citizens Utilities Co.), Mandatory Tender
1/16/1997 3,850,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
4,000,000 Northeastern, PA Hospital & Education Authority, VRDB's (Series 1996) Weekly VRDNs
(Allhealth Pooled Financing Program)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000
-----------------------------------------------------------------------------------
1,500,000 Northgate School District, PA, 4.22% TANs, 6/30/1997 1,501,132
-----------------------------------------------------------------------------------
1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman
Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000
-----------------------------------------------------------------------------------
1,000,000 Penns Manor Area School District, PA, 4.07% TRANs, 6/30/1997 1,000,947
-----------------------------------------------------------------------------------
1,800,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC
Bank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------
2,900,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank NA, Pittsburgh LOC) 2,900,000
-----------------------------------------------------------------------------------
675,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC
Bank, N.A. LOC) 675,000
-----------------------------------------------------------------------------------
600,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC
Bank, N.A. LOC) 600,000
-----------------------------------------------------------------------------------
850,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC
Bank, N.A. LOC) 850,000
-----------------------------------------------------------------------------------
450,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne
Printing Co.)/(PNC Bank, N.A. LOC) 450,000
-----------------------------------------------------------------------------------
1,000,000 Pennsylvania Education Development Authority, Economic Development Revenue Bonds
(Series 1996C) Weekly VRDNs (Napco, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000
-----------------------------------------------------------------------------------
1,075,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly
VRDNs (Metamora Products)/(PNC Bank, N.A. LOC) 1,075,000
-----------------------------------------------------------------------------------
$ 300,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI
Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) $ 300,000
-----------------------------------------------------------------------------------
500,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM
Forest Products)/(PNC Bank, N.A. LOC) 500,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
6,340,000 Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of Chicago
LIQ), Optional Tender 4/1/1997 6,340,000
-----------------------------------------------------------------------------------
960,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development
Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 960,000
-----------------------------------------------------------------------------------
1,960,000 Pennsylvania Housing Finance Authority, Variable Rate Merlots
(Series I), 4.15% TOBs, Optional Tender 1/1/1997 1,960,000
-----------------------------------------------------------------------------------
2,500,000 Pennsylvania State Higher Education Facilities Authority Daily VRDNs (Temple
University)/(Morgan Guaranty Trust Co., New York LOC) 2,500,000
-----------------------------------------------------------------------------------
3,300,000 Pennsylvania State University, Series of 1996, 4.25% BANs, 4/4/1997 3,310,080
-----------------------------------------------------------------------------------
8,800,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985)
Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 8,800,000
-----------------------------------------------------------------------------------
1,000,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital
Revenue Bonds (Series A of 1996) Daily VRDNs (Children's Hospital of
Philadelphia)/(Morgan Guaranty Trust Co., New York LIQ) 1,000,000
-----------------------------------------------------------------------------------
2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,006,644
-----------------------------------------------------------------------------------
2,275,000 Red Lion, PA Area School District, 4.25% TRANs, 6/30/1997 2,280,784
-----------------------------------------------------------------------------------
2,000,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA
LOC) 2,000,000
-----------------------------------------------------------------------------------
2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/23/1997 2,100,000
-----------------------------------------------------------------------------------
$ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/12/1996 $ 4,000,000
-----------------------------------------------------------------------------------
695,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics,
Inc.)/(National City Bank, Cleveland, OH LOC) 695,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs
(1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) 2,700,000
-----------------------------------------------------------------------------------
1,200,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs
(Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) 1,200,000
-----------------------------------------------------------------------------------
1,000,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly
VRDNs (Lebanon Valley Brethern Home Project (PA)/(Meridian Bank N.A., Philadelphia,
PA LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 York County, PA IDA, Variable Rate Demand Ltd. Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Metal Exchange Corp.)/ (Comerica Bank, Detroit, MI LOC) 1,000,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (B) $ 277,084,183
----------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to the Alternative Minimum Tax represent 37.25% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security rated by multiple NRSROs in different rating catefories should
be identified as a First or Second Tier security.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
93.96% 6.04%
</TABLE>
(b) Also represents cost for federal tax purposes.
-
Note: The categories of investments are shown as a percentage of net assets
($278,752,100) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs-- Bond Anticipation Notes
CGIC-- Capital Guaranty Insurance Corporation
CP-- Commercial Paper
FGIC-- Financial Guaranty Insurance Company
FSA-- Financial Security Assurance
GANs-- Grant Anticipation Notes
HDA-- Hospital Development Authority
IDA-- Industrial Development Authority
IDRB-- Industrial Development Revenue Bond
INS-- Insured
LIQ-- Liquidity Agreement
LOC-- Letter of Credit
PCR-- Pollution Control Revenue
PLC-- Public Limited Company
RANs-- Revenue Anticipation Notes
TANs-- Tax Anticipation Notes
TOBs-- Tender Option Bonds
TRANs-- Tax and Revenue Anticipation Notes
VRDB's-- Variable Rate Demand Bonds
VRDNs-- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 277,084,183
- -------------------------------------------------------------------------------------------------
Cash 212,204
- -------------------------------------------------------------------------------------------------
Income receivable 2,120,548
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 27,513
- ------------------------------------------------------------------------------------------------- --------------
Total assets 279,444,448
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for shares redeemed $ 70,241
- -------------------------------------------------------------------------------------
Income distribution payable 531,620
- -------------------------------------------------------------------------------------
Accrued expenses 90,487
- ------------------------------------------------------------------------------------- ----------
Total liabilities 692,348
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 278,752,100 shares outstanding $ 278,752,100
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$221,850,715 / 221,850,715 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
CASH SERIES SHARES:
- -------------------------------------------------------------------------------------------------
$19,824,886 / 19,824,886 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$37,076,499 / 37,076,499 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 11,097,104
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 1,470,813
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 222,042
- ---------------------------------------------------------------------------------------
Custodian fees 45,506
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 64,120
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,077
- ---------------------------------------------------------------------------------------
Auditing fees 14,592
- ---------------------------------------------------------------------------------------
Legal fees 4,488
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 96,483
- ---------------------------------------------------------------------------------------
Distribution services fee--Cash Series Shares 74,284
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 637,806
- ---------------------------------------------------------------------------------------
Shareholder services fee--Cash Series Shares 46,427
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 51,312
- ---------------------------------------------------------------------------------------
Share registration costs 30,773
- ---------------------------------------------------------------------------------------
Printing and postage 23,296
- ---------------------------------------------------------------------------------------
Insurance premiums 5,783
- ---------------------------------------------------------------------------------------
Miscellaneous 3,066
- --------------------------------------------------------------------------------------- -----------
Total expenses 2,794,868
- ---------------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $ (647,993)
- ---------------------------------------------------------------------------
Waiver of distribution services fee--Cash Series Shares (9,312)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (127,561)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (51,312)
- --------------------------------------------------------------------------- ----------
Total waivers (836,178)
- --------------------------------------------------------------------------------------- -----------
Net expenses 1,958,690
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 9,138,414
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 9,138,414 $ 9,679,534
- ---------------------------------------------------------------------- -------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------
Institutional Service Shares (7,961,058) (8,951,830)
- ----------------------------------------------------------------------
Cash Series Shares (504,436) (718,640)
- ----------------------------------------------------------------------
Institutional Shares (672,920) (9,064)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from distributions to shareholders (9,138,414) (9,679,534)
- ---------------------------------------------------------------------- -------------------- --------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of shares 1,005,435,067 1,028,950,579
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 2,204,567 2,339,163
- ----------------------------------------------------------------------
Cost of shares redeemed (1,036,079,299) (971,610,388)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from share transactions (28,439,665) 59,679,354
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets (28,439,665) 59,679,354
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 307,191,765 247,512,411
- ---------------------------------------------------------------------- -------------------- --------------------
End of period $ 278,752,100 $ 307,191,765
- ---------------------------------------------------------------------- -------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Pennsylvania Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash Series Shares and
Institutional Shares.
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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued and delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1996, capital paid-in aggregated $278,752,100.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------------------------------
Shares sold 859,300,895 940,400,092
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,683,244 1,631,397
- ----------------------------------------------------------------------------------
Shares redeemed (915,540,908) (894,784,261)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional Service share
transactions (54,556,769) 47,247,228
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
CASH SERIES SHARES
- ----------------------------------------------------------------------------------
Shares sold 54,089,713 85,377,025
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 485,371 705,513
- ----------------------------------------------------------------------------------
Shares redeemed (63,005,461) (76,179,429)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Cash Series share transactions (8,430,377) 9,903,109
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
INSTITUTIONAL SHARES
- ----------------------------------------------------------------------------------
Shares sold 92,044,459 3,173,462
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 35,952 2,253
- ----------------------------------------------------------------------------------
Shares redeemed (57,532,930) (646,698)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional share transactions 34,547,481 2,529,017
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (28,439,665) 59,679,354
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Cash Series Shares. The Plan provides
that the Fund may incur distribution expenses up to 0.40% of the average
daily net assets of the Cash Series Shares, annually to compensate FSC. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $446,357,000 and $488,200,000, respectively.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 71% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Pennsylvania Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2, 15 and 16 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Pennsylvania Municipal Cash Trust
Cash Series 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 Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL
CASH TRUST
CASH SERIES SHARES
PROSPECTUS
A Portfolio of Federated
Municipal Trust, an Open-End
Management Investment Company
Prospectus dated December 31, 1996
[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and a subsidiary of Federated Investors.
Cusip 314229881
9101005A-CSS (12/96)
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 portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). 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 federal regular income tax and personal income taxes imposed by the
Commonwealth of Pennsylvania consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- --
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32
- ------------------------------------------------------
ADDRESSES 33
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable).......................................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.28%
12b-1 Fee.............................................................................................. None
Total Other Expenses................................................................................... 0.17%
Shareholder Services Fee (after waiver) (2)............................................... 0.00%
Total Operating Expenses (3)................................................................. 0.45%
</TABLE>
- ------------
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.92% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information". Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................ $5 $14 $25 $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(A)
<S> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.03 0.01
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.01)
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 3.37% 1.03%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.45% 0.45%*
- -------------------------------------------------------------------------------------------
Net investment income 3.27% 3.81%*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.47% 0.46%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$37,076 $2,529
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established three classes of shares known as Cash Series Shares,
Institutional 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 portfolio
investing in short-term 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 over 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
- --------------------------------------------------------------------------------
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
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 Pennsylvania dividend and
interest income tax. (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 Board of 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 issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
bond anticipation notes 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 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.
Lease obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund and
affect its share price. The Fund may have more than 25% of its total assets
invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in tax-exempt or taxable securities, all of comparable quality
to other securities in which the Fund invests, 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 depository institutions 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).
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. Due to the risk considerations the Fund's
concentration in Pennsylvania Municipal Securities may entrail a greater level
of risk than other types of money market funds.
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 not invest more than 10% of its
net assets in securities subject to restrictions on resale under the Securities
Act of 1933. These investment limitations cannot be changed without shareholder
approval.
The following limitation may be changed without shareholder approval. 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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such
persons owe a fiduciary duty to the Fund's shareholders and must place the
interests of shareholders ahead of the employees' own interests. Among other
things, the codes: require preclearance and periodic reporting of personal
securities transactions; prohibit personal transactions in securities being
purchased or sold, or being considered for purchase or sale, by the Fund;
prohibit purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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 .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions may receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund 's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling 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 (Eastern time) that day. Federal funds should be wired as follows:
Federated Shareholder 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 Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays
when wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Pennsylvania Municipal Cash
Trust--Institutional Shares. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If shares certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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 (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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Fund would be subject to such taxes if owned directly by residents of
those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the
Fund derived from interest on obligations free from state taxation in
Pennsylvania are not subject to Pennsylvania personal income taxes.
Distributions made by the Fund will be subject to Pennsylvania personal income
taxes to the extent that they are derived from gain realized by the Fund from
the sale or exchange of otherwise tax-exempt obligations.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes of shares called Institutional Service Shares
and Cash Series Shares.
Cash Series Shares are sold primarily to retail customers of financial
institutions. Cash Series Shares are sold at net asset value and are subject to
a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Cash
Series Shares are subject to a minimum initial investment of $10,000 over a 90
day period.
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
financial institutions acting in an agency capacity and are subject to a minimum
initial investment of $25,000 over a 90 day period.
All classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.03
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ------------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 2.75% 3.02% 1.84% 1.83% 2.67% 3.55%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%*
- -------------------------------------------------
Net investment income 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%*
- -------------------------------------------------
Expense waiver/reimbursement (c) 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $19,825 $28,255 $18,352 $18,561 $24,694 $19,846
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.05
- --------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05)
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%*
- --------------------------------------
Net investment income 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%*
- --------------------------------------
Expense waiver/ reimbursement (c) 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%*
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period (000
omitted) $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882
- --------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 21, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--99.4%
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--99.4%
-----------------------------------------------------------------------------------
$ 7,000,000 Allegheny County, PA HDA, Hosp. Revenue Bonds (Series B 1995) Weekly VRDNs
(Allegheny General Hospital)/(Morgan Guaranty Trust Co., New York LOC) $ 7,000,000
-----------------------------------------------------------------------------------
1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,300,000 Allegheny County, PA IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank,
N.A. LOC) 1,300,000
-----------------------------------------------------------------------------------
6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/ (Barclays Bank PLC,
London LOC), Mandatory Tender 2/21/1997 6,500,000
-----------------------------------------------------------------------------------
4,850,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly
VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,850,000
-----------------------------------------------------------------------------------
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power
Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/7/1996 5,000,000
-----------------------------------------------------------------------------------
5,000,000 Allegheny County, PA Port Authority, (Series A), 3.90% GANs (PNC Bank, N.A. LOC),
6/30/1997 5,000,000
-----------------------------------------------------------------------------------
3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.65% CP (Toledo Edison
Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/10/1996 3,000,000
-----------------------------------------------------------------------------------
4,000,000 Bedford County, PA IDA, IDRB's (Series 1985) Weekly VRDNs (Sepa, Inc.
Facility)/(Banque Paribas, Paris LOC) 4,000,000
-----------------------------------------------------------------------------------
1,210,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 1,210,000
-----------------------------------------------------------------------------------
1,245,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 1,245,000
-----------------------------------------------------------------------------------
1,900,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics,
Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
$ 1,865,000 Berks County, PA IDA, Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,865,000
-----------------------------------------------------------------------------------
450,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 450,000
-----------------------------------------------------------------------------------
1,165,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 1,165,000
-----------------------------------------------------------------------------------
1,425,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs
(Lebanon Valley Mall Co.)/(Corestates, Reading, PA LOC) 1,425,000
-----------------------------------------------------------------------------------
4,000,000 Berks County, PA, (Series 1996), 4.50% TRANs, 12/31/1996 4,003,152
-----------------------------------------------------------------------------------
2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 2,445,000
-----------------------------------------------------------------------------------
2,835,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 2,835,000
-----------------------------------------------------------------------------------
4,500,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Corestates
Bank N.A., Philadelphia, PA LOC) 4,500,000
-----------------------------------------------------------------------------------
3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd,
Osaka LOC) 3,000,000
-----------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd,
Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/ (Chase Manhattan
Bank N.A., New York LOC) 1,400,000
-----------------------------------------------------------------------------------
5,500,000 Butler County, PA IDA, First Mortgage Revenue Bonds, 10.125% Bonds (St. John
Lutheran Care Center)/(United States Treasury PRF),
10/1/1997 (@102) 5,915,633
-----------------------------------------------------------------------------------
$ 2,385,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company,
Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 2,385,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/ (ABN AMRO Bank N.V.,
Amsterdam LOC) 2,400,000
-----------------------------------------------------------------------------------
1,700,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank,
N.A. LOC) 1,700,000
-----------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 2/19/1997 5,000,000
-----------------------------------------------------------------------------------
6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.65% CP (Panther Creek)/(National
Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 6,825,000
-----------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995B), 3.90%
RANs (Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York
LOC), 12/3/1996 5,000,000
-----------------------------------------------------------------------------------
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC) 7,300,000
-----------------------------------------------------------------------------------
8,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.80%
TOBs (International Paper Co.), Optional Tender
1/15/1997 8,000,000
-----------------------------------------------------------------------------------
3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon
Bank NA, Pittsburgh LOC) 3,000,000
-----------------------------------------------------------------------------------
5,000,000 Coatsville, PA School District, 4.25% TRANs, 6/30/1997 5,007,912
-----------------------------------------------------------------------------------
5,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 5,025,704
-----------------------------------------------------------------------------------
1,500,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs
(Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,500,000
-----------------------------------------------------------------------------------
3,000,000 Delaware County Authority, PA, Hospital Revenue Bonds (Series of 1996) Weekly VRDNs
(Crozer-Chester Medical Center)/(Kredietbank N.V., Brussels LOC) 3,000,000
-----------------------------------------------------------------------------------
$ 6,500,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia Electric Co.)/(FGIC
INS), Mandatory Tender 1/8/1997 $ 6,500,000
-----------------------------------------------------------------------------------
1,805,000 Downington Area School District, (Series A), 4.00% Bonds, 3/1/1997 1,806,703
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight
System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,900,000
-----------------------------------------------------------------------------------
5,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Mellon
Bank NA, Pittsburgh LOC) 5,800,000
-----------------------------------------------------------------------------------
400,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000
-----------------------------------------------------------------------------------
325,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank,
N.A. LOC) 325,000
-----------------------------------------------------------------------------------
500,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 500,000
-----------------------------------------------------------------------------------
1,600,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor,
Inc.)/(PNC Bank, N.A. LOC) 1,600,000
-----------------------------------------------------------------------------------
400,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City
Bank, Cleveland, OH LOC) 400,000
-----------------------------------------------------------------------------------
1,155,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank,
N.A. LOC) 1,155,000
-----------------------------------------------------------------------------------
1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC
Bank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------
2,670,000 Hampton Township, PA School District, 4.19% TRANs, 6/30/1997 2,671,520
-----------------------------------------------------------------------------------
2,700,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates
Bank N.A., Philadelphia, PA LOC) 2,700,000
-----------------------------------------------------------------------------------
2,200,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995)
Weekly VRDNs (Franklin and Marshall College Project) 2,200,000
-----------------------------------------------------------------------------------
1,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel
Co.)/(KeyBank, N.A. LOC) 1,356,092
-----------------------------------------------------------------------------------
$ 1,000,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly
VRDNs (Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,000,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,800,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC
Bank, N.A. LOC) 2,800,000
-----------------------------------------------------------------------------------
5,000,000 Luzerne Co, PA, 3.85% TRANs, 12/31/1996 5,001,183
-----------------------------------------------------------------------------------
1,650,000 Marple Township, PA, (Series 1996), 4.25% TRANs, 12/31/1996 1,651,697
-----------------------------------------------------------------------------------
790,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford
Manor, Inc.)/(PNC Bank, N.A. LOC) 790,000
-----------------------------------------------------------------------------------
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd,
Osaka LOC) 3,300,000
-----------------------------------------------------------------------------------
1,070,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly
VRDNs (Pottstown Healthcare Corporation Project)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,070,000
-----------------------------------------------------------------------------------
2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal
Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,600,000
-----------------------------------------------------------------------------------
1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited
Partnership)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000
-----------------------------------------------------------------------------------
1,635,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts
Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,635,000
-----------------------------------------------------------------------------------
4,975,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/ (ABN AMRO Bank N.V.,
Amsterdam LOC) 4,975,000
-----------------------------------------------------------------------------------
7,000,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond (Series
1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 7,000,000
-----------------------------------------------------------------------------------
3,500,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson
Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 3,500,000
-----------------------------------------------------------------------------------
3,250,000 Norristown, PA, (Series 1996), 3.75% TRANs, 12/31/1996 3,250,000
-----------------------------------------------------------------------------------
$ 9,000,000 Northampton County, PA IDA, 3.70% CP (Citizens Utilities Co.), Mandatory Tender
2/13/1997 $ 9,000,000
-----------------------------------------------------------------------------------
3,850,000 Northampton County, PA IDA, 3.80% CP (Citizens Utilities Co.), Mandatory Tender
1/16/1997 3,850,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
4,000,000 Northeastern, PA Hospital & Education Authority, VRDB's (Series 1996) Weekly VRDNs
(Allhealth Pooled Financing Program)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000
-----------------------------------------------------------------------------------
1,500,000 Northgate School District, PA, 4.22% TANs, 6/30/1997 1,501,132
-----------------------------------------------------------------------------------
1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman
Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000
-----------------------------------------------------------------------------------
1,000,000 Penns Manor Area School District, PA, 4.07% TRANs, 6/30/1997 1,000,947
-----------------------------------------------------------------------------------
1,800,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC
Bank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------
2,900,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank NA, Pittsburgh LOC) 2,900,000
-----------------------------------------------------------------------------------
675,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC
Bank, N.A. LOC) 675,000
-----------------------------------------------------------------------------------
600,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC
Bank, N.A. LOC) 600,000
-----------------------------------------------------------------------------------
850,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC
Bank, N.A. LOC) 850,000
-----------------------------------------------------------------------------------
450,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne
Printing Co.)/(PNC Bank, N.A. LOC) 450,000
-----------------------------------------------------------------------------------
1,000,000 Pennsylvania Education Development Authority, Economic Development Revenue Bonds
(Series 1996C) Weekly VRDNs (Napco, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000
-----------------------------------------------------------------------------------
1,075,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly
VRDNs (Metamora Products)/(PNC Bank, N.A. LOC) 1,075,000
-----------------------------------------------------------------------------------
$ 300,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI
Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) $ 300,000
-----------------------------------------------------------------------------------
500,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM
Forest Products)/(PNC Bank, N.A. LOC) 500,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
6,340,000 Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of Chicago
LIQ), Optional Tender 4/1/1997 6,340,000
-----------------------------------------------------------------------------------
960,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development
Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 960,000
-----------------------------------------------------------------------------------
1,960,000 Pennsylvania Housing Finance Authority, Variable Rate Merlots
(Series I), 4.15% TOBs, Optional Tender 1/1/1997 1,960,000
-----------------------------------------------------------------------------------
2,500,000 Pennsylvania State Higher Education Facilities Authority Daily VRDNs (Temple
University)/(Morgan Guaranty Trust Co., New York LOC) 2,500,000
-----------------------------------------------------------------------------------
3,300,000 Pennsylvania State University, Series of 1996, 4.25% BANs, 4/4/1997 3,310,080
-----------------------------------------------------------------------------------
8,800,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985)
Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 8,800,000
-----------------------------------------------------------------------------------
1,000,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital
Revenue Bonds (Series A of 1996) Daily VRDNs (Children's Hospital of
Philadelphia)/(Morgan Guaranty Trust Co., New York LIQ) 1,000,000
-----------------------------------------------------------------------------------
2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,006,644
-----------------------------------------------------------------------------------
2,275,000 Red Lion, PA Area School District, 4.25% TRANs, 6/30/1997 2,280,784
-----------------------------------------------------------------------------------
2,000,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA
LOC) 2,000,000
-----------------------------------------------------------------------------------
2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/23/1997 2,100,000
-----------------------------------------------------------------------------------
$ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/12/1996 $ 4,000,000
-----------------------------------------------------------------------------------
695,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics,
Inc.)/(National City Bank, Cleveland, OH LOC) 695,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs
(1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) 2,700,000
-----------------------------------------------------------------------------------
1,200,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs
(Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) 1,200,000
-----------------------------------------------------------------------------------
1,000,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly
VRDNs (Lebanon Valley Brethern Home Project (PA)/(Meridian, Bank N.A.,
Philadelphia, PA LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 York County, PA IDA, Variable Rate Demand Ltd. Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Metal Exchange Corp.)/ (Comerica Bank, Detroit, MI LOC) 1,000,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (B) $ 277,084,183
----------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to the Alternative Minimum Tax represent 37.25% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a securitiy rated by multiple NRSROs in different rating catefories should
be identified as a First or Second Tier security.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
93.96% 6.04%
</TABLE>
(b) Also represents cost for federal tax purposes.
-
Note: The categories of investments are shown as a percentage of net assets
($278,752,100) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs-- Bond Anticipation Notes
CGIC-- Capital Guaranty Insurance Corporation
CP-- Commercial Paper
FGIC-- Financial Guaranty Insurance Company
FSA-- Financial Security Assurance
GANs-- Grant Anticipation Notes
HDA-- Hospital Development Authority
IDA-- Industrial Development Authority
IDRB-- Industrial Development Revenue Bond
INS-- Insured
LIQ-- Liquidity Agreement
LOC-- Letter of Credit
PCR-- Pollution Control Revenue
PLC-- Public Limited Company
RANs-- Revenue Anticipation Notes
TANs-- Tax Anticipation Notes
TOBs-- Tender Option Bonds
TRANs-- Tax and Revenue Anticipation Notes
VRDB's-- Variable Rate Demand Bonds
VRDNs-- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 277,084,183
- -------------------------------------------------------------------------------------------------
Cash 212,204
- -------------------------------------------------------------------------------------------------
Income receivable 2,120,548
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 27,513
- ------------------------------------------------------------------------------------------------- --------------
Total assets 279,444,448
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for shares redeemed $ 70,241
- -------------------------------------------------------------------------------------
Income distribution payable 531,620
- -------------------------------------------------------------------------------------
Accrued expenses 90,487
- ------------------------------------------------------------------------------------- ----------
Total liabilities 692,348
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 278,752,100 shares outstanding $ 278,752,100
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$221,850,715 / 221,850,715 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
CASH SERIES SHARES:
- -------------------------------------------------------------------------------------------------
$19,824,886 / 19,824,886 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$37,076,499 / 37,076,499 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 11,097,104
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 1,470,813
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 222,042
- ---------------------------------------------------------------------------------------
Custodian fees 45,506
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 64,120
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,077
- ---------------------------------------------------------------------------------------
Auditing fees 14,592
- ---------------------------------------------------------------------------------------
Legal fees 4,488
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 96,483
- ---------------------------------------------------------------------------------------
Distribution services fee--Cash Series Shares 74,284
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 637,806
- ---------------------------------------------------------------------------------------
Shareholder services fee--Cash Series Shares 46,427
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 51,312
- ---------------------------------------------------------------------------------------
Share registration costs 30,773
- ---------------------------------------------------------------------------------------
Printing and postage 23,296
- ---------------------------------------------------------------------------------------
Insurance premiums 5,783
- ---------------------------------------------------------------------------------------
Miscellaneous 3,066
- --------------------------------------------------------------------------------------- -----------
Total expenses 2,794,868
- ---------------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $ (647,993)
- ---------------------------------------------------------------------------
Waiver of distribution services fee--Cash Series Shares (9,312)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (127,561)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (51,312)
- --------------------------------------------------------------------------- ----------
Total waivers (836,178)
- --------------------------------------------------------------------------------------- -----------
Net expenses 1,958,690
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 9,138,414
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 9,138,414 $ 9,679,534
- ---------------------------------------------------------------------- -------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------
Institutional Service Shares (7,961,058) (8,951,830)
- ----------------------------------------------------------------------
Cash Series Shares (504,436) (718,640)
- ----------------------------------------------------------------------
Institutional Shares (672,920) (9,064)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from distributions to shareholders (9,138,414) (9,679,534)
- ---------------------------------------------------------------------- -------------------- --------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of shares 1,005,435,067 1,028,950,579
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 2,204,567 2,339,163
- ----------------------------------------------------------------------
Cost of shares redeemed (1,036,079,299) (971,610,388)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from share transactions (28,439,665) 59,679,354
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets (28,439,665) 59,679,354
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 307,191,765 247,512,411
- ---------------------------------------------------------------------- -------------------- --------------------
End of period $ 278,752,100 $ 307,191,765
- ---------------------------------------------------------------------- -------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Pennsylvania Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash Series Shares and
Institutional Shares.
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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued and delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1996, capital paid-in aggregated $278,752,100.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------------------------------
Shares sold 859,300,895 940,400,092
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,683,244 1,631,397
- ----------------------------------------------------------------------------------
Shares redeemed (915,540,908) (894,784,261)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional Service share
transactions (54,556,769) 47,247,228
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CASH SERIES SHARES
- ----------------------------------------------------------------------------------
Shares sold 54,089,713 85,377,025
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 485,371 705,513
- ----------------------------------------------------------------------------------
Shares redeemed (63,005,461) (76,179,429)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Cash Series share transactions (8,430,377) 9,903,109
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
INSTITUTIONAL SHARES
- ----------------------------------------------------------------------------------
Shares sold 92,044,459 3,173,462
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 35,952 2,253
- ----------------------------------------------------------------------------------
Shares redeemed (57,532,930) (646,698)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional share transactions 34,547,481 2,529,017
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (28,439,665) 59,679,354
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Cash Series Shares. The Plan provides
that the Fund may incur distribution expenses up to 0.40% of the average
daily net assets of the Cash Series Shares, annually to compensate FSC. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $446,357,000 and $488,200,000, respectively.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 71% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9% of total investments.
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Pennsylvania Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996 and the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2, 14 and 15 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
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 Shareholder 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 Portfolio of Federated
Municipal Trust, an Open-End
Management Investment Company
Prospectus dated December 31, 1996
[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and a subsidiary of Federated Investors.
Cusip 314229717
G00214-01-IS (12/96)
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Pennsylvania Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). 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 federal regular income tax and personal income taxes
imposed by the Commonwealth of Pennsylvania consistent with stability of
principal.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Service
Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33
- ------------------------------------------------------
ADDRESSES 34
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as
applicable).......................................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee........................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.28%
12b-1 Fee.............................................................................................. None
Total Other Expenses................................................................................... 0.37%
Shareholder Services Fee (after waiver) (2)............................................... 0.20%
Total Operating Expenses (3)................................................................. 0.65%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.92% absent the voluntary
waivers of a portion of the management fee and the shareholder services
fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................ $7 $21 $36 $81
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.05
- --------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05)
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%*
- --------------------------------------
Net investment income 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%*
- --------------------------------------
Expense waiver/ reimbursement (c) 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%*
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period (000
omitted) $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882
- --------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 21, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established three classes of shares known as Cash Series Shares,
Institutional Shares, and Institutional Service Shares. This prospectus relates
only to Institutional Service Shares of the Fund, which are designed primarily
financial institutions acting in a fiduciary or agency capacity as a convenient
means of accumulating an interest in a professionally managed portfolio
investing in short-term 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 over 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
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income 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
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 Pennsylvania dividend and
interest income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
bond anticipation notes 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 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.
Lease obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in tax-exempt or taxable securities, all of comparable quality
to other securities in which the Fund invests, 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 depository institutionshaving 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).
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. Due to the risk considerations the Fund's
concentration in Pennsylvania Municipal Securities may entail a greater level of
risk than other types of money market funds.
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 not invest more than 10% of its
net assets in securities subject to restrictions on resale under the Securities
Act of 1933. These investment limitations cannot be changed without shareholder
approval. These investment limitations cannot be changed without shareholder
approval.
The following limitation may be changed without shareholder approval. 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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions may receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the first $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares Federated
Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund
before
1:00 (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) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania
Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Pennsylvania Municipal Cash
Trust--Institutional Service Shares. Please include an account number on the
check. Orders by mail are considered received when payment by check is converted
into federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Services Company receives
the redemption request. According to the shareholder's instructions, redemption
proceeds can be sent to the financial institution or to the shareholder by check
or by wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution for
this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the
following business day. Under limited circumstances, arrangements may be made
with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redeemed shares
purchased by check or through ACH will not be wired until that method of payment
has cleared.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Fund would be subject to such taxes if owned directly by residents of
those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the
Fund derived from interest on obligations free from state taxation in
Pennsylvania are not subject to Pennsylvania personal income taxes.
Distributions made by the Fund will be subject to Pennsylvania personal income
taxes to the extent that they are derived from gain realized by the Fund from
the sale or exchange of otherwise tax-exempt obligations.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes of shares called Institutional Shares and
Cash Series Shares. Institutional Shares are sold at net asset value primarily
to financial institutions acting in an agency capacity and are subject to a
minimum initial investment of $25,000 over a 90 day period. Cash Series Shares
that are sold primarily to retail customers of financial institutions.
Investments in Cash Series Shares are subject to a minimum initial investment of
$10,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees. Expense differences between classes may affect the
performance of each class.
Cash Series Shares are sold at net asset value and are subject to a Rule 12b-1
Plan and a Shareholder Services Agreement.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.03
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ------------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 2.75% 3.02% 1.84% 1.83% 2.67% 3.55%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%*
- -------------------------------------------------
Net investment income 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%*
- -------------------------------------------------
Expense waiver/reimbursement (c) 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $19,825 $28,255 $18,352 $18,561 $24,694 $19,846
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 33.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.03 0.01
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.01)
- --------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 3.37% 1.03%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.45% 0.45%*
- ---------------------------------------------------------------------------------------------
Net investment income 3.27% 3.81%*
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.47% 0.46%*
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $37,076 $2,529
- ---------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--99.4%
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--99.4%
-----------------------------------------------------------------------------------
$ 7,000,000 Allegheny County, PA HDA, Hosp. Revenue Bonds (Series B 1995) Weekly VRDNs
(Allegheny General Hospital)/(Morgan Guaranty Trust Co., New York LOC) $ 7,000,000
-----------------------------------------------------------------------------------
1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs
(Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,300,000 Allegheny County, PA IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank,
N.A. LOC) 1,300,000
-----------------------------------------------------------------------------------
6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/ (Barclays Bank PLC,
London LOC), Mandatory Tender 2/21/1997 6,500,000
-----------------------------------------------------------------------------------
4,850,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly
VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,850,000
-----------------------------------------------------------------------------------
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power
Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/7/1996 5,000,000
-----------------------------------------------------------------------------------
5,000,000 Allegheny County, PA Port Authority, (Series A), 3.90% GANs (PNC Bank, N.A. LOC),
6/30/1997 5,000,000
-----------------------------------------------------------------------------------
3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.65% CP (Toledo Edison
Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/10/1996 3,000,000
-----------------------------------------------------------------------------------
4,000,000 Bedford County, PA IDA, IDRB's (Series 1985) Weekly VRDNs
(Sepa, Inc. Facility)/(Banque Paribas, Paris LOC) 4,000,000
-----------------------------------------------------------------------------------
1,210,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 1,210,000
-----------------------------------------------------------------------------------
1,245,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 1,245,000
-----------------------------------------------------------------------------------
1,900,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics,
Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
$ 1,865,000 Berks County, PA IDA, Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,865,000
-----------------------------------------------------------------------------------
450,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 450,000
-----------------------------------------------------------------------------------
1,165,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 1,165,000
-----------------------------------------------------------------------------------
1,425,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs
(Lebanon Valley Mall Co.)/(Corestates Bank, Reading, PA LOC) 1,425,000
-----------------------------------------------------------------------------------
4,000,000 Berks County, PA, (Series 1996), 4.50% TRANs, 12/31/1996 4,003,152
-----------------------------------------------------------------------------------
2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 2,445,000
-----------------------------------------------------------------------------------
2,835,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/ (Corestates Bank N.A.,
Philadelphia, PA LOC) 2,835,000
-----------------------------------------------------------------------------------
4,500,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Corestates
Bank N.A., Philadelphia, PA LOC) 4,500,000
-----------------------------------------------------------------------------------
3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd,
Osaka LOC) 3,000,000
-----------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd,
Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000
-----------------------------------------------------------------------------------
1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/ (Chase Manhattan
Bank N.A., New York LOC) 1,400,000
-----------------------------------------------------------------------------------
5,500,000 Butler County, PA IDA, First Mortgage Revenue Bonds, 10.125% Bonds (St. John
Lutheran Care Center)/(United States Treasury PRF),
10/1/1997 (@102) 5,915,633
-----------------------------------------------------------------------------------
$ 2,385,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company,
Inc. Project)/(ABN AMRO Bank N.V.,
Amsterdam LOC) $ 2,385,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/ (ABN AMRO Bank N.V.,
Amsterdam LOC) 2,400,000
-----------------------------------------------------------------------------------
1,700,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank,
N.A. LOC) 1,700,000
-----------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC,
London LOC), Mandatory Tender 2/19/1997 5,000,000
-----------------------------------------------------------------------------------
6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.65% CP (Panther Creek)/(National
Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 6,825,000
-----------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes
(Series 1995B), 3.90% RANs (Horsehead Resource Development, Inc.)/
(Chase Manhattan Bank N.A., New York LOC), 12/3/1996 5,000,000
-----------------------------------------------------------------------------------
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/
(ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000
-----------------------------------------------------------------------------------
8,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds
(Series 1992A), 3.80% TOBs (International Paper Co.), Optional Tender
1/15/1997 8,000,000
-----------------------------------------------------------------------------------
3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon
Bank NA, Pittsburgh LOC) 3,000,000
-----------------------------------------------------------------------------------
5,000,000 Coatsville, PA School District, 4.25% TRANs, 6/30/1997 5,007,912
-----------------------------------------------------------------------------------
5,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 5,025,704
-----------------------------------------------------------------------------------
1,500,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs
(Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,500,000
-----------------------------------------------------------------------------------
3,000,000 Delaware County Authority, PA, Hospital Revenue Bonds (Series of 1996) Weekly VRDNs
(Crozer-Chester Medical Center)/(Kredietbank N.V., Brussels LOC) 3,000,000
-----------------------------------------------------------------------------------
$ 6,500,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia Electric Co.)/(FGIC
INS), Mandatory Tender 1/8/1997 $ 6,500,000
-----------------------------------------------------------------------------------
1,805,000 Downington Area School District, (Series A), 4.00% Bonds, 3/1/1997 1,806,703
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight
System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,900,000
-----------------------------------------------------------------------------------
5,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Mellon
Bank NA, Pittsburgh LOC) 5,800,000
-----------------------------------------------------------------------------------
400,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000
-----------------------------------------------------------------------------------
325,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank,
N.A. LOC) 325,000
-----------------------------------------------------------------------------------
500,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/
(PNC Bank, N.A. LOC) 500,000
-----------------------------------------------------------------------------------
1,600,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor,
Inc.)/(PNC Bank, N.A. LOC) 1,600,000
-----------------------------------------------------------------------------------
400,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City
Bank, Cleveland, OH LOC) 400,000
-----------------------------------------------------------------------------------
1,155,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank,
N.A. LOC) 1,155,000
-----------------------------------------------------------------------------------
1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC
Bank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------
2,670,000 Hampton Township, PA School District, 4.19% TRANs, 6/30/1997 2,671,520
-----------------------------------------------------------------------------------
2,700,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates
Bank N.A., Philadelphia, PA LOC) 2,700,000
-----------------------------------------------------------------------------------
2,200,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995)
Weekly VRDNs (Franklin and Marshall College Project) 2,200,000
-----------------------------------------------------------------------------------
1,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs
(Ellwood Uddeholm Steel Co.)/(KeyBank, N.A. LOC) 1,356,092
-----------------------------------------------------------------------------------
$ 1,000,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly
VRDNs (Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,000,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,800,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs
(Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) 2,800,000
-----------------------------------------------------------------------------------
5,000,000 Luzerne Co, PA, 3.85% TRANs, 12/31/1996 5,001,183
-----------------------------------------------------------------------------------
1,650,000 Marple Township, PA, (Series 1996), 4.25% TRANs, 12/31/1996 1,651,697
-----------------------------------------------------------------------------------
790,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford
Manor, Inc.)/(PNC Bank, N.A. LOC) 790,000
-----------------------------------------------------------------------------------
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd,
Osaka LOC) 3,300,000
-----------------------------------------------------------------------------------
1,070,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly
VRDNs (Pottstown Healthcare Corporation Project)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,070,000
-----------------------------------------------------------------------------------
2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal
Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,600,000
-----------------------------------------------------------------------------------
1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited
Partnership)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000
-----------------------------------------------------------------------------------
1,635,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts
Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,635,000
-----------------------------------------------------------------------------------
4,975,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/ (ABN AMRO Bank N.V.,
Amsterdam LOC) 4,975,000
-----------------------------------------------------------------------------------
7,000,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond (Series
1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 7,000,000
-----------------------------------------------------------------------------------
3,500,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson
Memorial Hospital)/(FSA INS)/
(PNC Bank, N.A. LIQ) 3,500,000
-----------------------------------------------------------------------------------
3,250,000 Norristown, PA, (Series 1996), 3.75% TRANs, 12/31/1996 3,250,000
-----------------------------------------------------------------------------------
$ 9,000,000 Northampton County, PA IDA, 3.70% CP (Citizens Utilities Co.), Mandatory Tender
2/13/1997 $ 9,000,000
-----------------------------------------------------------------------------------
3,850,000 Northampton County, PA IDA, 3.80% CP (Citizens Utilities Co.), Mandatory Tender
1/16/1997 3,850,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
4,000,000 Northeastern, PA Hospital & Education Authority, VRDB's (Series 1996) Weekly VRDNs
(Allhealth Pooled Financing Program)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000
-----------------------------------------------------------------------------------
1,500,000 Northgate School District, PA, 4.22% TANs, 6/30/1997 1,501,132
-----------------------------------------------------------------------------------
1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman
Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000
-----------------------------------------------------------------------------------
1,000,000 Penns Manor Area School District, PA, 4.07% TRANs, 6/30/1997 1,000,947
-----------------------------------------------------------------------------------
1,800,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC
Bank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------
2,900,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank NA, Pittsburgh LOC) 2,900,000
-----------------------------------------------------------------------------------
675,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC
Bank, N.A. LOC) 675,000
-----------------------------------------------------------------------------------
600,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC
Bank, N.A. LOC) 600,000
-----------------------------------------------------------------------------------
850,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC
Bank, N.A. LOC) 850,000
-----------------------------------------------------------------------------------
450,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne
Printing Co.)/(PNC Bank, N.A. LOC) 450,000
-----------------------------------------------------------------------------------
1,000,000 Pennsylvania Education Development Authority, Economic Development Revenue Bonds
(Series 1996C) Weekly VRDNs
(Napco, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000
-----------------------------------------------------------------------------------
1,075,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly
VRDNs (Metamora Products)/
(PNC Bank, N.A. LOC) 1,075,000
-----------------------------------------------------------------------------------
$ 300,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI
Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) $ 300,000
-----------------------------------------------------------------------------------
500,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM
Forest Products)/(PNC Bank, N.A. LOC) 500,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
6,340,000 Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of Chicago
LIQ), Optional Tender 4/1/1997 6,340,000
-----------------------------------------------------------------------------------
960,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development
Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 960,000
-----------------------------------------------------------------------------------
1,960,000 Pennsylvania Housing Finance Authority, Variable Rate Merlots
(Series I), 4.15% TOBs, Optional Tender 1/1/1997 1,960,000
-----------------------------------------------------------------------------------
2,500,000 Pennsylvania State Higher Education Facilities Authority Daily VRDNs (Temple
University)/(Morgan Guaranty Trust Co.,
New York LOC) 2,500,000
-----------------------------------------------------------------------------------
3,300,000 Pennsylvania State University, Series of 1996, 4.25% BANs, 4/4/1997 3,310,080
-----------------------------------------------------------------------------------
8,800,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985)
Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 8,800,000
-----------------------------------------------------------------------------------
1,000,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital
Revenue Bonds (Series A of 1996) Daily VRDNs (Children's Hospital of
Philadelphia)/(Morgan Guaranty Trust Co.,
New York LIQ) 1,000,000
-----------------------------------------------------------------------------------
2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,006,644
-----------------------------------------------------------------------------------
2,275,000 Red Lion, PA Area School District, 4.25% TRANs, 6/30/1997 2,280,784
-----------------------------------------------------------------------------------
2,000,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Prime Packing, Inc. Project)/
(Corestates Bank N.A., Philadelphia, PA LOC) 2,000,000
-----------------------------------------------------------------------------------
2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/23/1997 2,100,000
-----------------------------------------------------------------------------------
$ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/12/1996 $ 4,000,000
-----------------------------------------------------------------------------------
695,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics,
Inc.)/(National City Bank, Cleveland, OH LOC) 695,000
-----------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-----------------------------------------------------------------------------------
2,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs
(1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) 2,700,000
-----------------------------------------------------------------------------------
1,200,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs
(Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) 1,200,000
-----------------------------------------------------------------------------------
1,000,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly
VRDNs (Lebanon Valley Brethern Home Project (PA)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 York County, PA IDA, Variable Rate Demand Ltd. Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Metal Exchange Corp.)/ (Comerica Bank, Detroit, MI LOC) 1,000,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (B) $ 277,084,183
----------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to the Alternative Minimum Tax represent 37.25% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a securitiy rated by multiple NRSROs in different rating catefories should
be identified as a First or Second Tier security.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
93.96% 6.04%
</TABLE>
(b) Also represents cost for federal tax purposes.
-
Note: The categories of investments are shown as a percentage of net assets
($278,752,100) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs-- Bond Anticipation Notes
CGIC-- Capital Guaranty Insurance Corporation
CP-- Commercial Paper
FGIC-- Financial Guaranty Insurance Company
FSA-- Financial Security Assurance
GANs-- Grant Anticipation Notes
HDA-- Hospital Development Authority
IDA-- Industrial Development Authority
IDRB-- Industrial Development Revenue Bond
INS-- Insured
LIQ-- Liquidity Agreement
LOC-- Letter of Credit
PCR-- Pollution Control Revenue
PLC-- Public Limited Company
RANs-- Revenue Anticipation Notes
TANs-- Tax Anticipation Notes
TOBs-- Tender Option Bonds
TRANs-- Tax and Revenue Anticipation Notes
VRDB's-- Variable Rate Demand Bonds
VRDNs-- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 277,084,183
- -------------------------------------------------------------------------------------------------
Cash 212,204
- -------------------------------------------------------------------------------------------------
Income receivable 2,120,548
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 27,513
- ------------------------------------------------------------------------------------------------- --------------
Total assets 279,444,448
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for shares redeemed $ 70,241
- -------------------------------------------------------------------------------------
Income distribution payable 531,620
- -------------------------------------------------------------------------------------
Accrued expenses 90,487
- ------------------------------------------------------------------------------------- ----------
Total liabilities 692,348
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 278,752,100 shares outstanding $ 278,752,100
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$221,850,715 / 221,850,715 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
CASH SERIES SHARES:
- -------------------------------------------------------------------------------------------------
$19,824,886 / 19,824,886 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$37,076,499 / 37,076,499 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 11,097,104
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 1,470,813
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 222,042
- ---------------------------------------------------------------------------------------
Custodian fees 45,506
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 64,120
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,077
- ---------------------------------------------------------------------------------------
Auditing fees 14,592
- ---------------------------------------------------------------------------------------
Legal fees 4,488
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 96,483
- ---------------------------------------------------------------------------------------
Distribution services fee--Cash Series Shares 74,284
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 637,806
- ---------------------------------------------------------------------------------------
Shareholder services fee--Cash Series Shares 46,427
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 51,312
- ---------------------------------------------------------------------------------------
Share registration costs 30,773
- ---------------------------------------------------------------------------------------
Printing and postage 23,296
- ---------------------------------------------------------------------------------------
Insurance premiums 5,783
- ---------------------------------------------------------------------------------------
Miscellaneous 3,066
- --------------------------------------------------------------------------------------- -----------
Total expenses 2,794,868
- ---------------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $ (647,993)
- ---------------------------------------------------------------------------
Waiver of distribution services fee--Cash Series Shares (9,312)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (127,561)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (51,312)
- --------------------------------------------------------------------------- ----------
Total waivers (836,178)
- --------------------------------------------------------------------------------------- -----------
Net expenses 1,958,690
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 9,138,414
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
<S> <C> <C>
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 9,138,414 $ 9,679,534
- ---------------------------------------------------------------------- -------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------
Institutional Service Shares (7,961,058) (8,951,830)
- ----------------------------------------------------------------------
Cash Series Shares (504,436) (718,640)
- ----------------------------------------------------------------------
Institutional Shares (672,920) (9,064)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from distributions to shareholders (9,138,414) (9,679,534)
- ---------------------------------------------------------------------- -------------------- --------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of shares 1,005,435,067 1,028,950,579
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 2,204,567 2,339,163
- ----------------------------------------------------------------------
Cost of shares redeemed (1,036,079,299) (971,610,388)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from share transactions (28,439,665) 59,679,354
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets (28,439,665) 59,679,354
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 307,191,765 247,512,411
- ---------------------------------------------------------------------- -------------------- --------------------
End of period $ 278,752,100 $ 307,191,765
- ---------------------------------------------------------------------- -------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PENNSYLVANIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Pennsylvania Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash Series Shares and
Institutional Shares.
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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued and delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1996 capital paid in aggregated $278,752,100.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------- -------------- --------------
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------------------------------
Shares sold 859,300,895 940,400,092
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,683,244 1,631,397
- ----------------------------------------------------------------------------------
Shares redeemed (915,540,908) (894,784,261)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional Service share
transactions (54,556,769) 47,247,228
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CASH SERIES SHARES
- ----------------------------------------------------------------------------------
Shares sold 54,089,713 85,377,025
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 485,371 705,513
- ----------------------------------------------------------------------------------
Shares redeemed (63,005,461) (76,179,429)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Cash Series share transactions (8,430,377) 9,903,109
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
INSTITUTIONAL SHARES
- ----------------------------------------------------------------------------------
Shares sold 92,044,459 3,173,462
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 35,952 2,253
- ----------------------------------------------------------------------------------
Shares redeemed (57,532,930) (646,698)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional share transactions 34,547,481 2,529,017
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (28,439,665) 59,679,354
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Cash Series Shares. The Plan provides
that the Fund may incur distribution expenses up to 0.40% of the average
daily net assets of the Cash Series Shares, annually to compensate FSC. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $446,357,000 and $488,200,000, respectively.
PENNSYLVANIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 71% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Pennsylvania Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2, 15 and 16 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Pennsylvania Municipal Cash Trust
Institutional Service 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 Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Non-Diversified Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and a subsidiary of Federated Investors.
Cusip 314229204
9101005A-SS (12/96)
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Pennsylvania Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229204
9101005B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
PENNSYLVANIA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
Selling Short and Buying on Margin 3
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Diversification of Investments 3
Lending Cash or Securities 3
Investing in Commodities 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees Compensation 10
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11
Investment Adviser 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Public Accountants 12
DETERMINING NET ASSET VALUE 12
REDEMPTION IN KIND 13
MASSACHUSETTS PARTNERSHIP LAW 13
THE FUND'S TAX STATUS 13
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 14
Tax-Equivalent Yield 14
Tax-Equivalency Table 14
Total Return 16
Performance Comparisons 16
Economic and Market Information 16
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 17
Institutional Clients 17
Trust Organizations 17
Broker/Dealers and Bank Broker/Dealer Subsidiaries 17
APPENDIX 18
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
PENNSYLVANIA INVESTMENT RISKS
The Fund invests in obligations of Pennsylvania (the "Commonwealth")
issuers which result in the Fund's performance being subject to risks
associated with the overall conditions present within the Commonwealth. The
following information is a brief summary of the prevailing economic
conditions and general summary of the Commonwealth's financial condition.
This information is based on official statements relating to securities and
from other sources believed to be reliable but should not be considered as
a complete description of all relevant information.
Pennsylvania's economic base is mature but substantial. However, the
Commonwealth's historical over-dependence upon manufacturing and mining
continues to leave it vulnerable to cyclical economic trends. Recent data
shows improvement in employment diversification, however, employment growth
still lags the nation. In addition, population growth, as in many
industrial states, has remained flat.
The Commonwealth's financial position has historically been tied to
fluctuations in national economic trends, as well as of that of nearby
states. The Commonwealth was hit hard by the recession in the early 1990's
and experience operating deficits in both 1990 and 1991. From 1992 to 1995,
the Commonwealth was able to improve its financial position by actions
including increasing taxes and controlling expenditures, and by the end of
fiscal 1995 restored it's unreserved fund balance to $443 million (1.8% of
expenditures). However, on a budgetary basis, preliminary results for
fiscal 1996 indicate an operating deficit of $253 million. This main cause
of the operating deficit was business tax cuts implemented by a new
administration. The impact of the business tax cuts will continue to be
felt in 1997, during which the Commonwealth projects another operating
deficit. However, the Commonwealth does not expect to need to tap the Tax
Stabilization Reserve or `Rainy Day'' Fund of $211 million during 1997.
The overall credit quality of the Commonwealth is demonstrated by its debt
ratings. Pennsylvania maintains an A-1 rating by Moody's Investors Service,
Inc. that has been in effect since 1986. Standard & Poor's Ratings Group
rates the Commonwealth
AA - ; this has remained since 1985.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund whose
assets are diversified across numerous states and municipal issuers. The
ability of the Commonwealth or its municipalities to meet their obligations
will depend on the availability of tax and other revenues; economic,
political, and demographic conditions within the Commonwealth; and the
underlying fiscal condition of the Commonwealth, its counties, and its
municipalities.
INVESTMENT LIMITATIONS
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").
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as are necessary for
the clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money in amounts up to one-third of the value of its total
assets, including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as
a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the
pledge.
DIVERSIFICATION OF INVESTMENTS
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 and limitations.
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, 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.
PORTFOLIO TRADING
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'').
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN 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.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments, as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Cash Series Shares of the Federated Municipal
Trust: BHC Securities, Inc., (as record owner holding Cash Series Shares
for its clients), Philadelphia, PA, owned approximately 8,033,305 shares
(30.57%); and Renick Brothers Construction Company, Inc., Slippery Rock,
PA, owned approximately 1,154,798 shares (5.85%).
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Shares of the Federated Municipal
Trust: The Chase Manhattan Bank, N.A., New York, NY, owned approximately
8,872,797 shares (19.41%); JASCO & Company, Indiana, PA, owned
approximately 6,546,761 shares (14.32%); Holiday Company, Holidaysburg, PA,
owned approximately 5,813,462 shares (12.71%); Univest & Company,
Souderton, PA, owned approximately 4,882,352 shares (10.68%); Finaba
Company, Hermitage, PA, owned approximately 4,544,198 shares (9.94%);
Raywed, Heritage Trust Company, Erie, PA, owned approximately 2,962,898
shares (6.48%); and B B Securities Company, (as record owner holding
Institutional Shares for its clients), Blue Ball, PA, owned approximately
2,438,215 shares (5.33%).
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Service Shares of Federated Municipal
Trust: First Union National Bank, Charlotte, NC, owned approximately
46,834,531 shares (20.46%); National City Bank Cleveland, Cleveland, OH,
owned approximately 24,751,831 shares (10.81%); Corestates Bank, N.A.,
owned approximately 22,862,740 shares (9.99%); Mellon Bank Capital Markets,
Pittsburgh, PA, owned approximately 13,265,363 shares (5.79%); Keystone
Financial Inc., Altoona, PA, owned approximately 12,423,874 shares (5.43%);
and Saxon & Company, owned approximately 12,020,657 shares (5.25%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611
$104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934
$115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 Pennsylvania Municipal Cash 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 Pennsylvania Municipal Cash
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, 1996, 1995, and 1994, the adviser earned
$1,470,813, $1,445,400, and $1,617,472, respectively, of which $647,993,
$222,841, and $53,564, respectively, were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services, Inc. may
hereinafter collectively be referred to as the `Administrators.'' For the
fiscal years ended October 31, 1996, 1995, and 1994, the Administrators
earned $222,042, $218,834, and $274,571, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN 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 adopted a Shareholder Service Agreement with
respect to Cash Series Shares, Institutional Shares, and Institutional
Service Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities 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 Plan, the Trustees expect that the Cash Series Shares 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 seeking to achieve its investment
objectives. By identifying potential investors whose needs are served by
the Fund `s objectives, and properly servicing these accounts, the Fund may
be able 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 year ended October 31, 1996, Cash Series Shares made
payments in the amount of $74,284 pursuant to the Plan, of which $9,312 was
voluntarily waived. In addition, for the fiscal year ended October 31,
1996, Cash Series Shares, Institutional Shares and Institutional Service
Shares paid shareholder service fees in the amounts of $46,427, $637,806
and $51,312, respectively of which $0, $127,561 and $51,312, respectively
were voluntarily waived.
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 0.50% 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.
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.
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, 1996, the yields for Cash Series
Shares, Institutional Shares and Institutional Service Shares were 2.6%,
3.21% and 3.01%, 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, 1996, the effective yields for
Cash Series Shares, Institutional Shares and Institutional Service Shares
were 2.64%, 3.26% and 3.05, 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 42.40% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yields
for Cash Series Shares, Institutional Shares and Institutional Service
Shares were 4.53%, 5.57% and 5.23, 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 1996
STATE OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
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.
Cash Series Shares average annual total returns for the one-year and five-
year periods ended October 31, 1996 and for the period from January 25,
1991 (date of initial public investment) through October 31, 1996 were
2.75%, 2.42 and 2.68%, respectively.
Institutional Shares average annual total returns for the one-year period
ended October 31, 1996 and for the period from August 23, 1995(date of
initial public investment) through October 31, 1996 were 3.37% and 3.42%,
respectively.
Institutional Service Shares average annual total returns for the one-year
and five-year periods ended October 31, 1996, and for the period from
November 21, 1989 (date of initial public investment) through October 31,
1996, were 3.16%, 2.83% and 3.50%, respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1)
The underlying issuer/obligor/guarantor has other outstanding debt
rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2)
The underlying issuer/obligor/guarantor has other outstanding debt
rated `AA'' by S&P or ``AA'' by Moody's.
NR(3)
The underlying issuer/obligor/guarantor has other outstanding debt
rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
PROSPECTUS
The Cash Series Shares of Minnesota Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Minnesota municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Minnesota, or its
political subdivisions and financing authorities, but which provide income
exempt from federal regular income tax and regular personal income taxes
imposed by the State of Minnesota consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
CASH SERIES SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Policies 3
Minnesota Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 6
Management of the Fund 6
Distribution of Cash Series Shares 7
Adminstration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 32
ADDRESSES 33
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CASH SERIES SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering None
price)
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.14%
12b-1 Fee (after waiver)(2) 0.25%
Total Other Expenses 0.41%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 0.80%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The distributor can terminate this voluntary
waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.50%.
(3) The Total Operating Expenses would have been 1.31% absent the voluntary
waivers of portions of the management fee and
12b-1 fee.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Security Dealers, Inc.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Cash Series Shares of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $8 $26 $44 $99
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.97% 3.41% 2.17% 2.02% 2.78% 3.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.70% 0.71% 0.71% 0.71% 0.64%*
Net investment income 2.93% 3.37% 2.15% 2.01% 2.75% 4.11%*
Expense waiver/
reimbursement(c) 0.51% 0.62% 0.61% 0.44% 0.44% 0.59%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $235,614 $131,471 $94,335 $67,521 $75,044 $69,747
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 7, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Cash Series Shares and Institutional Shares. This prospectus
relates only to Cash Series Shares of the Fund, which are designed primarily
for retail customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed portfolio investing
primarily in short-term municipal securities. The Fund may not be a suitable
investment for retirement plans or for non-Minnesota taxpayers because it
invests in municipal securities of that state. A minimum initial investment
of $10,000 over 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
The investment objective of the Fund is current income exempt from federal
regular income tax and the regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal. 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 complying with the diversification and other requirements of
Rule 2a-7 under the Investment Company Act of 1940 which regulates money
market mutual funds and by following the investment policies described in
this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 both federal regular and Minnesota
regular personal income taxes. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of 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 Minnesota and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and Minnesota state income tax imposed upon
non-corporate taxpayers ("Minnesota Municipal Securities"). Examples of
Minnesota Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Minnesota
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Minnesota 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS.
The Fund may purchasesecurities 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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Minnesota Municipal Securities is subject to the federal alternative minimum
tax.
MINNESOTA MUNICIPAL SECURITIES
Minnesota Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Minnesota Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Minnesota 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 Minnesota Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 Minnesota 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 Minnesota Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in Minnesota 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 Minnesota 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 Minnesota 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. Due to these risk
considerations, the Fund's concentration in Minnesota Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 15%
of the value of total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF CASH SERIES SHARES
Federated Securities Corp. is the principal distributor for Cash Series
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of up to .50% of the average daily net
asset value of the Fund. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset
value of its shares to obtain certain personal services for shareholders and
to maintain shareholder accounts. 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 may receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Distribution Plan and Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their
own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance may be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Fund's
investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Cash Series Shares from the value of Fund assets attributable to Cash
Series Shares, and dividing the remainder by the number of Cash Series
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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $10,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling 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 in order to begin earning dividends that same
day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: Minnesota Municipal Cash Trust -- Cash
Series Shares; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Order Number; Nominee
or Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted. Questions on wire
purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Minnesota Municipal Cash
Trust -- Cash Series Shares. Please include an account number on the check.
Orders by mail are considered received when payment by check is converted
into federal funds (normally the business day after the check is received),
and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Services Company
receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Proceeds
from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement. Under limited circumstances, arrangements
may be made with the distributor for same-day payment of proceeds, without
that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through
ACH will not be wired until that method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $10,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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, within the limits of its investment
policies, 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
Minnesota. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
MINNESOTA TAXES. Under existing Minnesota laws, distributions made by the
Fund will be exempt from Minnesota regular personal income taxes provided
that such distributions qualify as exempt-interest dividends under the
Internal Revenue Code, and provided further that 95% of such distributions
are derived from interest on obligations issued by the State of Minnesota or
any of its political or governmental subdivisions, municipalities, or
governmental agencies or instrumentalities. Distributions made by the Fund
will also be exempt to the extent that they are derived from interest on
federal obligations and are reported federally as dividend income by
shareholders. Conversely, to the extent that distributions made by the Fund
are derived from other types of obligations, such distributions will be
subject to Minnesota regular personal income taxes.
Dividends of the Fund are not exempt from Minnesota corporate income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary capacity and are subject to a minimum
initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 fees but are subject to
shareholder services fees
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.04 0.03 0.02 0.03 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.04) (0.03) (0.02) (0.03) (0.05) (0.01)
NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
PERIOD
TOTAL RETURN(B) 3.49% 3.82% 2.58% 2.43% 3.19% 4.89% 0.90%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.30% 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%*
Net investment income 3.43% 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%*
Expense waiver/
reimbursement(c) 0.51% 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $217,443 $212,392 $159,704 $165,865 $245,168 $124,603 $75,904
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 10, 1990 (date of
initial public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- 100.9%
MINNESOTA -- 99.6%
$ 400,000 Anoka City, MN Solid Waste Disposal Authority, 3.65% CP (United
Power Associates)/(National Rural Utilities Cooperative Finance
Corp. GTD), Mandatory Tender 12/2/1996 $ 400,000
6,000,000 Anoka City, MN Solid Waste Disposal Authority, 3.75% CP (United
Power Associates)/(National Rural Utilities Cooperative Finance
Corp. GTD), Mandatory Tender 2/13/1997 6,000,000
2,050,000 Anoka, MN, Multi-Family Housing Revenue Bonds Weekly VRDNs
(Walker Plaza Project)/(First Bank NA, Minneapolis LOC) 2,050,000
10,000,000 Anoka-Hennepin, MN ISD 11, GO Certificates of Indebtedness (Series
1996A), 3.44% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 3/13/1997 10,000,268
3,785,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV
Development Company Project)/(Firstar Bank, Minnesota LOC) 3,785,000
2,505,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, Inc.)/
(NationsBank, South LOC) 2,505,000
4,000,000 Becker, MN, PCR (Series 1993A & B), 3.60% CP (Northern States
Power Co.), Mandatory Tender 11/14/1996 4,000,000
6,500,000 Becker, MN, PCR (Series 1993A & B), 3.70% CP (Northern States
Power Co.), Mandatory Tender 11/26/1996 6,500,000
500,000 Beltrami County, MN, Environmental Control Authority Daily
VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland,
Zurich LOC) 500,000
1,400,000 Beltrami County, MN, Environmental Control Authority, (Series 1995)
Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of
Switzerland, Zurich LOC) 1,400,000
2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series 1996)
Weekly VRDNs (S & S of Minnesota, LLC Project)/(Norwest Bank
Minnesota, Minneapolis LOC) 2,855,000
2,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding
Bonds (Series 1996B) Weekly VRDNs (Mall of America)/(FSA INS)/
(Credit Local de France LIQ) 2,000,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 3,600,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now
Technologies, Inc. Project)/(Norwest Bank Minnesota,
Minneapolis LOC) $ 3,600,000
5,000,000 Bloomington, MN, Multi-Family Housing Weekly VRDNs (Crow/
Bloomington Apartments)/(Citibank NA, New York LOC) 5,000,000
4,400,000 Burnsville, MN, Adjustable Rate IDRBs (Series 1996) Weekly VRDNs
(Caire, Inc. Project)/(Bank One, Milwaukee, WI N.A. LOC) 4,400,000
8,080,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of
Burnsville)/(Sumitomo Bank Ltd., Osaka LOC) 8,080,000
1,275,000 Chanhassen, MN IDA, (Series 1995) Weekly VRDNs (Building
Management Group, L.L.C. Project)/(Norwest Bank Minnesota,
Minneapolis LOC) 1,275,000
5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series 1996A)
Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,000,000
2,800,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly VRDNs
(Health Central System)/(First Bank NA, Minneapolis LOC) 2,800,000
2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly
VRDNs (Supervalu Inc.)/(Wachovia Bank of Georgia NA,
Atlanta LOC) 2,350,000
5,400,000 Crystal, MN IDA Weekly VRDNs (Crystal Gallery Mall, MN)/
(Citibank NA, New York LOC) 5,400,000
10,745,000 Dakota County & Washington County MN Hsg & Redev Auth,
Merlots (Series J), 4.20% TOBs (United States Treasury COL)/
(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender
3/1/1997 10,745,000
1,655,000 Dakota County, MN Housing & Redevelopment Authority,
(Custodial Receipts), 4.20% TOBs (GNMA COL)/(Corestates Bank
N.A., Philadelphia, PA LIQ), Optional Tender 3/1/1997 1,655,000
3,000,000 (b)Dakota County, Washington County & Anoka City, MN Housing &
Redevelopment Authority, Merlots-Series H, 4.15% TOBs (United
States Treasury COL)/(Corestates Bank N.A., Philadelphia, PA LIQ),
Optional Tender 12/1/1996 3,000,000
6,750,000 Duluth, MN, Tax and Aid Anticipation Certificates, 4.25% TANs,
12/31/1996 6,754,741
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 8,000,000 Eagan, MN, Multi-Family Housing (Series 1992A) Weekly VRDNs
(Cinnamon Ridge)/(Mellon Bank NA, Pittsburgh LOC) $ 8,000,000
1,000,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust
(Series 1996A), Floating Rate Certificates Weekly VRDNs (MBIA INS)/
(Norwest Bank Minnesota, Minneapolis LIQ) 1,000,000
1,125,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust
(Series 1996B), Floating Rate Certificates Weekly VRDNs (MBIA INS)/
(Norwest Bank Minnesota, Minneapolis LIQ) 1,125,000
855,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen
Project)/(Norwest Bank Minnesota, Minneapolis LOC) 855,000
1,340,000 Eden Prairie, MN IDA, (Series 1996) Weekly VRDNs (Challenge
Printing, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,340,000
41,677 Eden Prairie, MN IDA, (Series 1987) Weekly VRDNs (Minnesota
Supply Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 41,677
1,450,000 Eden Prairie, MN IDA, (Series 1995) Weekly VRDNs (Robert
Lothenbach Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,450,000
1,025,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank
Minnesota, Minneapolis LOC) 1,025,000
2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington Standard
Corporation Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,945,000
4,025,000 Fridley, MN, (Series 1984) Weekly VRDNs (River Road Investors
Project)/(Citibank NA, New York LOC) 4,025,000
7,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co.
MN GTD) 7,000,000
5,550,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs 5,550,000
2,500,000 Hennepin Co. MN, GO UT Notes, 4.25% Bonds, 12/1/1996 2,501,899
3,150,000 Hennepin County, MN ISD 286, (Series 1996), 3.38% TANs (Minnesota
Tax and Aid Anticipation Borrowing Program GTD), 3/21/1997 3,150,351
5,500,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly
VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,500,000
3,205,000 Lakeville, MN ISD 194, (Series 1996), 3.90% TRANs, 9/30/1997 3,205,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 1,135,000 Litchfield, MN ISD, Certificates of Indebtedness, 3.33% TANs
(Minnesota Tax and Aid Anticipation Borrowing Program GTD),
3/28/1997 $ 1,135,131
2,500,000 (b)MN Insured Municipal Securities Trust, Series 1996H, Floating
Rate Certificates Weekly VRDNs (St. Louis Park, MN Health Care
Facilities)/(Norwest Bank Minnesota, Minneapolis LIQ)/
(AMBAC INS) 2,500,000
4,000,000 (b)MN Municipal Securities Trust, Series 1996H, Floating Rate
Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA INS)/
(Norwest Bank Minnesota, Minneapolis LIQ) 4,000,000
3,900,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle Ridge,
MN Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 3,900,000
3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle Ridge,
MN Apartments)/(First Bank NA, Minneapolis LOC) 3,000,000
2,025,000 Maplewood, MN, Multi-Family Housing (Series 1993) Weekly VRDNs
(Silver Ridge Project)/(Federal Home Loan Bank of Chicago LOC) 2,025,000
2,610,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs
(Lexington Heights Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 2,610,000
13,755,000 Minneapolis CDA, Refunding Revenue Bonds Weekly VRDNs
(Riverplace Project (The Pinnacle Apartments))/(Sumitomo Bank Ltd.,
Osaka LOC) 13,755,000
8,440,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995) Weekly
VRDNs (Walker Methodist Health Center, Inc. Project)/(First Bank
NA, Minneapolis LOC) 8,440,000
700,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(First Bank NA,
Minneapolis LOC) 700,000
7,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 7,000,000
1,000,000 Minneapolis, MN, Variable Rate Demand Commercial Development
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB &
Company Project)/(First Bank NA, Minneapolis LOC) 1,000,000
10,100,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly
VRDNs (One Ten Grant Project)/(First Bank NA, Minneapolis LOC) 10,100,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 4,240,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue
Bonds, Merlots (Series D), 4.125% TOBs (GNMA COL)/(Corestates
Bank NA, Philadelphia, PA LIQ), Optional Tender 1/1/1997 $ 4,240,000
1,066,000 Minneapolis/St. Paul MN Housing Finance Board, Single Family
Mortgage Revenue Bonds, 4.25% TOBs (GNMA COL)/(Corestates
Bank N.A., Philadelphia, PA LIQ), Optional Tender 2/1/1997 1,066,000
8,000,000 Minnesota State Commissioner of Iron Range Resources &
Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-Pacific Corp.)/
(Wachovia Bank of NC, NA, Winston-Salem LOC) 8,000,000
800,000 Minnesota State HFA, Rental Housing (Series D), 4.15% Bonds
(MBIA INS), 8/1/1997 801,712
4,650,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series M),
3.50% TOBs (Societe Generale, Paris INV), Mandatory Tender
12/12/1996 4,650,000
400,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series O),
3.60% TOBs (Societe Generale, Paris INV), Optional Tender
12/12/1996 400,000
6,500,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C)
Weekly VRDNs (First Bank NA, Minneapolis LIQ) 6,500,000
12,700,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C)
Weekly VRDNs (First Bank NA, Minneapolis LIQ) 12,700,000
5,400,000 Minnesota State Higher Education Coordinating Board, Supplemental
Student Loan Program Refunding Revenue Bonds (Series 1994A)
Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) 5,400,000
4,300,000 Minnesota State Higher Education Facility Authority Weekly VRDNs
(Carlton College)/(Swiss Bank Corp., Basle LIQ) 4,300,000
5,000,000 Minnesota State, (Series A), 5.00% Bonds (AMBAC INS), 6/30/1997 5,042,129
1,000,000 Minnesota State, 6.60% Bonds, 8/1/1997 1,019,268
3,825,000 Minnesota State, GO State Various Purpose Bonds, 5.00% Bonds,
11/1/1997 3,868,796
2,000,000 Minnesota State, UT GO Refunding Bonds, 4.70% Bonds, 8/1/1997 2,014,740
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 8,750,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates
of Participation (Series 1996A), 4.25% TANs (Minnesota Tax and Aid
Anticipation Borrowing Program GTD), 2/21/1997 $ 8,769,474
9,500,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates
of Participation, Aid Anticipation Series 1996A, 4.50% TANs (Minne-
sota Tax and Aid Anticipation Borrowing Program GTD), 8/19/1997 9,540,066
6,600,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates
of Participation, Aid Anticipation Series 1996B, 4.50% TANs (Minne-
sota Tax and Aid Anticipation Borrowing Program GTD), 9/9/1997 6,633,722
1,515,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos., Inc.)/
(Norwest Bank Minnesota, Minneapolis LOC) 1,515,000
5,900,000 Minnetonka, MN, Multi-Family Housing Revenue Refunding Bonds
(Series 1995) Weekly VRDNs (Southampton Apartments Project
(MN))/(National Bank of Canada, Montreal LOC) 5,900,000
2,800,000 Moorhead, MN ISD, Certificates of Indebtedness, 3.35% TANs (Minne-
sota Tax and Aid Anticipation Borrowing Program GTD), 3/27/1997 2,800,374
2,250,000 (b)N. St. Paul-Maplewood, MN, ISD 622, MN Municipal Securities Trust
(Series 1996D), Floating Rate Certificate Weekly VRDNs (Norwest
Bank Minnesota, Minneapolis LIQ) 2,250,000
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/
(Banque Paribas, Paris LOC) 1,300,000
1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and
Hanson Printing Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 1,000,000
3,560,000 New Hope, MN Weekly VRDNs (Paddock Labs)/(Norwest Bank
Minnesota, Minneapolis LOC) 3,560,000
2,445,000 Olmsted County, MN Building Authority, Certificates of Participation
Weekly VRDNs (Human Services Infrastructure)/(Toronto-Dominion
Bank LOC) 2,445,000
2,405,000 Orono, MN ISD 278, GO Certificates of Indebtedness, (Series 1996),
3.53% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 3/13/1997 2,405,749
1,800,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/(Rabobank
Nederland, Utrecht LOC) 1,800,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 1,320,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank
Minnesota, Minneapolis LOC) $ 1,320,000
4,500,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic Steel,
Inc.)/(National City Bank, Cleveland, OH LOC) 4,500,000
1,435,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest
Bank Minnesota, Minneapolis LOC) 1,435,000
14,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs
(Mayo Foundation) 14,000,000
3,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs
(Mayo Foundation) 3,000,000
2,160,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.50%
CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory
Tender 11/13/1996 2,160,000
1,000,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.60%
CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory
Tender 11/20/1996 1,000,000
1,000,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing Corp)/
(KeyBank, N.A. LOC) 1,000,000
2,810,000 Rogers, MN IDA, IDRB Weekly VRDNs (DAC Development, LLC
Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,810,000
26,950,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs
(Koch Refining Co.) 26,950,000
7,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs
(St. Francis Regional Medical Center)/(Citibank NA, New York LOC) 7,000,000
1,500,000 Southern Minnesota Municipal Power Agency, 3.65% CP, Mandatory
Tender 2/25/1997 1,500,000
1,547,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue
Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,547,500
2,772,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue
Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,772,500
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 5,000,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs
(District Cooling St Paul, Inc.)/(Credit Local de France LOC) $ 5,000,000
500,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs
(United Way)/(First Bank NA, Minneapolis LOC) 500,000
1,100,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994)
Weekly VRDNs (Minnesota Children's Museum)/(First Bank NA,
Minneapolis LOC) 1,100,000
2,000,000 St. Paul, MN Housing & Redevelopment Authority, District Cooling
Revenue Bonds (1995 Series I) Weekly VRDNs (Credit Local de
France LOC) 2,000,000
1,300,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West Gate
Office)/(First Bank NA, Minneapolis LOC) 1,300,000
9,700,000 St. Paul, MN Water Utility, Variable Rate Demand Water Revenue
Bonds, Series 1994D Weekly VRDNs 9,700,000
1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount, Inc.)/
(NationsBank, South LOC) 1,000,000
4,500,000 Stillwater, MN ISD #834, GO Obligation Aid Anticipation Certificates
of Indebtedness (Series 1996), 4.10% TRANs (Minnesota Tax and Aid
Anticipation Borrowing Program GTD), 9/30/1997 4,505,802
6,500,000 University of Minnesota, (Series F), 3.75% TOBs (Regents of
University of Minnesota), Optional Tender 2/1/1997 6,500,000
4,205,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc.
Project)/(Norwest Bank Minnesota, Minneapolis LOC) 4,205,000
1,420,000 Victoria, MN, Industrial Development Revenue Bonds, (Series 1996B)
Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank Minnesota,
Minneapolis LOC) 1,420,000
2,315,000 Waseca, MN ISD #829, GO UT Notes, 3.57% TANs, 3/26/1997 2,315,349
12,910,000 Washington County, MN Housing & Redevelopment Authority,
(Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo
Bank Ltd., Osaka LOC) 12,910,000
1,405,000 Wells, MN, 4.00% TOBs (Stokely, Inc.)/(NBD Bank, Indiana LOC),
Optional Tender 12/1/1996 1,405,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 1,105,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest
Bank Minnesota, Minneapolis LOC) $ 1,105,000
2,165,000 White Bear, MN, Variable Rate Demand Industrial Revenue Bonds
Weekly VRDNs (N.A. Ternes Project)/(Firstar Bank, Minnesota LOC) 2,165,000
2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet
National Bank, Providence, R.I. LOC) 2,000,000
Total 450,982,248
PUERTO RICO--1.3%
3,700,000 Puerto Rico Government Development Bank, 3.50% CP, Mandatory
Tender 12/12/1996 3,700,000
2,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental
Control Finance Authority, (Series 1994A), 3.80% CP (Inter American
University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory
Tender 1/13/1997 2,000,000
Total 5,700,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 456,682,248
</TABLE>
Securities that are subject to the Alternative Minimum Tax Represent 26.8%
of the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security rated by multiple NRSROs in different rating categories should
be identified as a First or Second Tier security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $18,115,000 which represents 4.0% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($453,057,193) at October 31, 1996.
The following acronym(s) are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
CDA -- Community Development Administration
COL -- Collateralized
CP -- Commercial Paper
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bond
INS -- Insured
INV -- Investment Agreement
ISD -- Independent School District
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SFM -- Single Family Mortgage
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 456,682,248
Cash 51,607,820
Income receivable 3,147,493
Receivable for shares sold 5,522
Total assets 511,443,083
LIABILITIES:
Payable for investments purchased $ 57,474,240
Payable for shares redeemed 170,140
Income distribution payable 600,768
Accrued expenses 140,742
Total liabilities 58,385,890
Net Assets for 453,057,193 shares outstanding $ 453,057,193
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$217,443,044 / 217,443,044 shares outstanding $1.00
CASH SERIES SHARES:
$235,614,149 / 235,614,149 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $15,092,730
EXPENSES:
Investment advisory fee $ 1,616,197
Administrative personnel and services fee 305,489
Custodian fees 65,627
Transfer and dividend disbursing agent fees and expenses 118,998
Directors'/Trustees' fees 4,530
Auditing fees 13,561
Legal fees 12,199
Portfolio accounting fees 98,168
Distribution services fee -- Cash Series Shares 897,310
Shareholder services fee -- Institutional Shares 561,584
Shareholder services fee -- Cash Series Shares 448,655
Share registration costs 22,700
Printing and postage 13,988
Insurance premiums 6,621
Taxes 1,608
Miscellaneous 3,063
Total expenses 4,190,298
Waivers --
Waiver of investment advisory fee $ (1,058,480)
Waiver of distribution services fee -- Cash Series Shares (448,655)
Waiver of shareholder services fee -- Institutional (561,584)
Shares
Total waivers (2,068,719)
Net expenses 2,121,579
Net investment income $12,971,151
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 12,971,151 $ 12,302,404
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (7,706,768) (8,269,227)
Cash Series Shares (5,264,383) (4,033,177)
Change in net assets resulting from distributions
to shareholders (12,971,151) (12,302,404)
SHARE TRANSACTIONS --
Proceeds from sale of shares 1,294,216,493 1,040,754,759
Net asset value of shares issued to shareholders in
payment
of distributions declared 5,465,115 4,384,166
Cost of shares redeemed (1,190,487,756) (955,314,263)
Change in net assets resulting from share transactions 109,193,852 89,824,662
Change in net assets 109,193,852 89,824,662
NET ASSETS:
Beginning of period 343,863,341 254,038,679
End of period $ 453,057,193 $ 343,863,341
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Minnesota Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund
offers two classes of shares: Institutional Shares and Cash Series Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees (the
"Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940. Additional
information on each restricted security held at October 31, 1996 is as
follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Dakota County, Washington County & Anoka City,
MN Housing & Redevelopment Authority, Merlots - Series H 08/29/96 3,000,000
Minneapolis/St. Paul, MN Housing Finance Board,
SMF Revenue Bonds (Series D) 10/01/96 4,240,000
Eden Prairie, MN ISD 272, MN Insured Municipal
Securities Trust (Series 1996A) 07/11/96 1,000,000
Eden Prairie, MN ISD 272, MN Insured Municipal
Securities Trust (Series 1996B) 07/11/96 1,125,000
MN Insured Municipal Securities Trust Series,
Series 1996H, (St. Louis Park, MN Health Care
Facilities) Floating Rate Certificates 07/01/96 2,500,000
MN Municipal Securities Trust Series, Series 1996H,
(Rosemount, MN I.S.D. 196) Floating Rate Certificates 05/01/96 4,000,000
N. St. Paul-Maplewood-Oakdale ISD 622,
MN Insured Municipal Securities Trust (Series 1996D) 07/11/96 2,250,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$453,057,193. Transactions is shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1996 1995
<S> <C> <C>
Shares sold 547,719,129 546,893,719
Shares issued to shareholders in payment of distributions 301,311 425,031
declared
Shares redeemed (542,969,267) (494,630,825)
Net change resulting from Institutional Share transactions 5,051,173 52,687,925
<CAPTION>
YEAR ENDED OCTOBER 31,
CASH SERIES SHARES 1996 1995
<S> <C> <C>
Shares sold 746,497,364 493,861,040
Shares issued to shareholders in payment of distributions 5,163,804 3,959,135
declared
Shares redeemed (647,518,489) (460,683,438)
Net change resulting from Cash Series Share transactions 104,142,679 37,136,737
Net change resulting from fund share transactions 109,193,852 89,824,662
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to .40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Cash Series Shares. The Plan provides
that the Fund may incur distribution expenses up to .50% of the average
daily net assets of the Cash Series Shares, annually, to compensate FSC. FSC
may voluntarily choose to waive a portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to .25% of average daily net assets of each class of shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. For fiscal year ended,
October 31, 1996, the Institutional Shares fully waived its shareholder
services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $635,984,740 and $593,880,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 73.8% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 7.8% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(MINNESOTA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Minnesota Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996, the related statement of
operations for the year then ended, and the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights (see pages 2 and 14 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Minnesota Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended, and the changes in its net assets for each of the two
years in the period then ended and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
Minnesota Municipal Cash Trust
Cash Series 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229873
0082715A-CSS (12/96)
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Minnesota Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Minnesota municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Minnesota, or its
political subdivisions and financing authorities, but which provide income
exempt from federal regular income tax and regular personal income taxes
imposed by the State of Minnesota consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Minnesota Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
HOW TO REDEEM SHARES 10
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 11
Federal Income Tax 11
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
CASH SERIES SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 32
ADDRESSES 33
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.14%
12b-1 Fee None
Total Other Expenses 0.16%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.30%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.81% absent the voluntary
waivers of a portion of the management fee and the shareholder services
fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $3 $10 $17 $38
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.04 0.03 0.02 0.03 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.04) (0.03) (0.02) (0.03) (0.05) (0.01)
NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
PERIOD
TOTAL RETURN(B) 3.49% 3.82% 2.58% 2.43% 3.19% 4.89% 0.90%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.30% 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%*
Net investment income 3.43% 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%*
Expense waiver/
reimbursement(c) 0.51% 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $217,443 $212,392 $159,704 $165,865 $245,168 $124,603 $75,904
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 10, 1990 (date of
initial public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Shares and Cash Series Shares. This prospectus
relates only to Institutional Shares of the Fund, which are designed
primarily for financial institutions acting in a fiduciary capacity as a
convenient means of accumulating an interest in a professionally managed
portfolio investing primarily in short-term municipal securities. The Fund
may not be a suitable investment for retirement plans or for non-Minnesota
taxpayers because it invests in municipal securities of that state. A
minimum initial investment of $25,000 over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal. 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 complying with the diversification and other requirements of
Rule 2a-7 under the Investment Company Act of 1940 which regulates money
market mutual funds and by following the investment policies described in
this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 both federal regular income tax and
Minnesota regular personal income taxes. (Federal regular income tax does
not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of 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 Minnesota and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and Minnesota state income tax imposed upon
non-corporate taxpayers ("Minnesota Municipal Securities"). Examples of
Minnesota Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Minnesota
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Minnesota 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Minnesota Municipal Securities is subject to the federal alternative minimum
tax.
MINNESOTA MUNICIPAL SECURITIES
Minnesota Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Minnesota Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Minnesota 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 Minnesota Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 Minnesota 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 Minnesota Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in Minnesota 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 Minnesota 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 Minnesota 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. Due to these risk
considerations, the Fund's concentration in Minnesota Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 15%
of the value of its total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The 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 $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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 .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions may receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund 's investment adviser or
its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Minnesota Municipal Cash Trust -- Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Minnesota Municipal Cash
Trust -- Institutional Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next
day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 12, 1996, VAR & Company, Saint Paul, MN, owned 61.75% of the
Institutional Shares of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Fund and be able to affect the outcome of certain
matters presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
Minnesota. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
MINNESOTA TAXES. Under existing Minnesota laws, distributions made by the
Fund will be exempt from Minnesota regular personal income taxes provided
that such distributions qualify as exempt-interest dividends under the
Internal Revenue Code, and provided further that 95% of such distributions
are derived from interest on obligations issued by the State of Minnesota or
any of its political or governmental subdivisions, municipalities, or
governmental agencies or instrumentalities. Distributions made by the Fund
will also be exempt to the extent that they are derived from interest on
federal obligations and are reported federally as dividend income by
shareholders. Conversely, to the extent that distributions made by the Fund
are derived from other types of obligations, such distributions will be
subject to Minnesota regular personal income taxes.
Dividends of the Fund are not exempt from Minnesota corporate income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Cash Series Shares. Cash
Series Shares are sold at net asset value primarily to retail customers of
financial institutions and are subject to a minimum initial investment of
$10,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Cash Series Shares are distributed under a 12b-1 Plan adopted by the Fund
and also are subject to shareholder services fees. Expense differences
between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
MINNESOTA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.97% 3.41% 2.17% 2.02% 2.78% 3.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.70% 0.71% 0.71% 0.71% 0.64%*
Net investment income 2.93% 3.37% 2.15% 2.01% 2.75% 4.11%*
Expense waiver/
reimbursement(c) 0.51% 0.62% 0.61% 0.44% 0.44% 0.59%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $235,614 $131,471 $94,335 $67,521 $75,044 $69,747
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 7, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- 100.9%
MINNESOTA -- 99.6%
$ 400,000 Anoka City, MN Solid Waste Disposal Authority, 3.65% CP (United
Power Associates)/(National Rural Utilities Cooperative Finance
Corp. GTD), Mandatory Tender 12/2/1996 $ 400,000
6,000,000 Anoka City, MN Solid Waste Disposal Authority, 3.75% CP (United
Power Associates)/(National Rural Utilities Cooperative Finance
Corp. GTD), Mandatory Tender 2/13/1997 6,000,000
2,050,000 Anoka, MN, Multi-Family Housing Revenue Bonds Weekly VRDNs
(Walker Plaza Project)/(First Bank NA, Minneapolis LOC) 2,050,000
10,000,000 Anoka-Hennepin, MN ISD 11, GO Certificates of Indebtedness (Series
1996A), 3.44% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 3/13/1997 10,000,268
3,785,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV
Development Company Project)/(Firstar Bank, Minnesota LOC) 3,785,000
2,505,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, Inc.)/
(NationsBank, South LOC) 2,505,000
4,000,000 Becker, MN, PCR (Series 1993A & B), 3.60% CP (Northern States
Power Co.), Mandatory Tender 11/14/1996 4,000,000
6,500,000 Becker, MN, PCR (Series 1993A & B), 3.70% CP (Northern States
Power Co.), Mandatory Tender 11/26/1996 6,500,000
500,000 Beltrami County, MN, Environmental Control Authority Daily
VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland,
Zurich LOC) 500,000
1,400,000 Beltrami County, MN, Environmental Control Authority, (Series 1995)
Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of
Switzerland, Zurich LOC) 1,400,000
2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series 1996)
Weekly VRDNs (S & S of Minnesota, LLC Project)/(Norwest Bank
Minnesota, Minneapolis LOC) 2,855,000
2,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding
Bonds (Series 1996B) Weekly VRDNs (Mall of America)/(FSA INS)/
(Credit Local de France LIQ) 2,000,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 3,600,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now
Technologies, Inc. Project)/(Norwest Bank Minnesota,
Minneapolis LOC) $ 3,600,000
5,000,000 Bloomington, MN, Multi-Family Housing Weekly VRDNs (Crow/
Bloomington Apartments)/(Citibank NA, New York LOC) 5,000,000
4,400,000 Burnsville, MN, Adjustable Rate IDRBs (Series 1996) Weekly VRDNs
(Caire, Inc. Project)/(Bank One, Milwaukee, WI N.A. LOC) 4,400,000
8,080,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of
Burnsville)/(Sumitomo Bank Ltd., Osaka LOC) 8,080,000
1,275,000 Chanhassen, MN IDA, (Series 1995) Weekly VRDNs (Building
Management Group, L.L.C. Project)/(Norwest Bank Minnesota,
Minneapolis LOC) 1,275,000
5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series 1996A)
Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,000,000
2,800,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly VRDNs
(Health Central System)/(First Bank NA, Minneapolis LOC) 2,800,000
2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly
VRDNs (Supervalu Inc.)/(Wachovia Bank of Georgia NA,
Atlanta LOC) 2,350,000
5,400,000 Crystal, MN IDA Weekly VRDNs (Crystal Gallery Mall, MN)/
(Citibank NA, New York LOC) 5,400,000
10,745,000 Dakota County & Washington County MN Hsg & Redev Auth,
Merlots (Series J), 4.20% TOBs (United States Treasury COL)/
(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender
3/1/1997 10,745,000
1,655,000 Dakota County, MN Housing & Redevelopment Authority,
(Custodial Receipts), 4.20% TOBs (GNMA COL)/(Corestates Bank
N.A., Philadelphia, PA LIQ), Optional Tender 3/1/1997 1,655,000
3,000,000 (b)Dakota County, Washington County & Anoka City, MN Housing &
Redevelopment Authority, Merlots-Series H, 4.15% TOBs (United
States Treasury COL)/(Corestates Bank N.A., Philadelphia, PA LIQ),
Optional Tender 12/1/1996 3,000,000
6,750,000 Duluth, MN, Tax and Aid Anticipation Certificates, 4.25% TANs,
12/31/1996 6,754,741
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 8,000,000 Eagan, MN, Multi-Family Housing (Series 1992A) Weekly VRDNs
(Cinnamon Ridge)/(Mellon Bank NA, Pittsburgh LOC) $ 8,000,000
1,000,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust
(Series 1996A), Floating Rate Certificates Weekly VRDNs (MBIA INS)/
(Norwest Bank Minnesota, Minneapolis LIQ) 1,000,000
1,125,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust
(Series 1996B), Floating Rate Certificates Weekly VRDNs (MBIA INS)/
(Norwest Bank Minnesota, Minneapolis LIQ) 1,125,000
855,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen
Project)/(Norwest Bank Minnesota, Minneapolis LOC) 855,000
1,340,000 Eden Prairie, MN IDA, (Series 1996) Weekly VRDNs (Challenge
Printing, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,340,000
41,677 Eden Prairie, MN IDA, (Series 1987) Weekly VRDNs (Minnesota
Supply Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 41,677
1,450,000 Eden Prairie, MN IDA, (Series 1995) Weekly VRDNs (Robert
Lothenbach Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,450,000
1,025,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank
Minnesota, Minneapolis LOC) 1,025,000
2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington Standard
Corporation Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,945,000
4,025,000 Fridley, MN, (Series 1984) Weekly VRDNs (River Road Investors
Project)/(Citibank NA, New York LOC) 4,025,000
7,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co.
MN GTD) 7,000,000
5,550,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs 5,550,000
2,500,000 Hennepin Co. MN, GO UT Notes, 4.25% Bonds, 12/1/1996 2,501,899
3,150,000 Hennepin County, MN ISD 286, (Series 1996), 3.38% TANs (Minnesota
Tax and Aid Anticipation Borrowing Program GTD), 3/21/1997 3,150,351
5,500,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly
VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,500,000
3,205,000 Lakeville, MN ISD 194, (Series 1996), 3.90% TRANs, 9/30/1997 3,205,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 1,135,000 Litchfield, MN ISD, Certificates of Indebtedness, 3.33% TANs
(Minnesota Tax and Aid Anticipation Borrowing Program GTD),
3/28/1997 $ 1,135,131
2,500,000 (b)MN Insured Municipal Securities Trust, Series 1996H, Floating
Rate Certificates Weekly VRDNs (St. Louis Park, MN Health Care
Facilities)/(Norwest Bank Minnesota, Minneapolis LIQ)/
(AMBAC INS) 2,500,000
4,000,000 (b)MN Municipal Securities Trust, Series 1996H, Floating Rate
Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA INS)/
(Norwest Bank Minnesota, Minneapolis LIQ) 4,000,000
3,900,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle Ridge,
MN Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 3,900,000
3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle Ridge,
MN Apartments)/(First Bank NA, Minneapolis LOC) 3,000,000
2,025,000 Maplewood, MN, Multi-Family Housing (Series 1993) Weekly VRDNs
(Silver Ridge Project)/(Federal Home Loan Bank of Chicago LOC) 2,025,000
2,610,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs
(Lexington Heights Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 2,610,000
13,755,000 Minneapolis CDA, Refunding Revenue Bonds Weekly VRDNs
(Riverplace Project (The Pinnacle Apartments))/(Sumitomo Bank Ltd.,
Osaka LOC) 13,755,000
8,440,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995) Weekly
VRDNs (Walker Methodist Health Center, Inc. Project)/(First Bank
NA, Minneapolis LOC) 8,440,000
700,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(First Bank NA,
Minneapolis LOC) 700,000
7,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 7,000,000
1,000,000 Minneapolis, MN, Variable Rate Demand Commercial Development
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB &
Company Project)/(First Bank NA, Minneapolis LOC) 1,000,000
10,100,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly
VRDNs (One Ten Grant Project)/(First Bank NA, Minneapolis LOC) 10,100,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 4,240,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue
Bonds, Merlots (Series D), 4.125% TOBs (GNMA COL)/(Corestates
Bank NA, Philadelphia, PA LIQ), Optional Tender 1/1/1997 $ 4,240,000
1,066,000 Minneapolis/St. Paul MN Housing Finance Board, Single Family
Mortgage Revenue Bonds, 4.25% TOBs (GNMA COL)/(Corestates
Bank N.A., Philadelphia, PA LIQ), Optional Tender 2/1/1997 1,066,000
8,000,000 Minnesota State Commissioner of Iron Range Resources &
Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-Pacific Corp.)/
(Wachovia Bank of NC, NA, Winston-Salem LOC) 8,000,000
800,000 Minnesota State HFA, Rental Housing (Series D), 4.15% Bonds
(MBIA INS), 8/1/1997 801,712
4,650,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series M),
3.50% TOBs (Societe Generale, Paris INV), Mandatory Tender
12/12/1996 4,650,000
400,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series O),
3.60% TOBs (Societe Generale, Paris INV), Optional Tender
12/12/1996 400,000
6,500,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C)
Weekly VRDNs (First Bank NA, Minneapolis LIQ) 6,500,000
12,700,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C)
Weekly VRDNs (First Bank NA, Minneapolis LIQ) 12,700,000
5,400,000 Minnesota State Higher Education Coordinating Board, Supplemental
Student Loan Program Refunding Revenue Bonds (Series 1994A)
Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) 5,400,000
4,300,000 Minnesota State Higher Education Facility Authority Weekly VRDNs
(Carlton College)/(Swiss Bank Corp., Basle LIQ) 4,300,000
5,000,000 Minnesota State, (Series A), 5.00% Bonds (AMBAC INS), 6/30/1997 5,042,129
1,000,000 Minnesota State, 6.60% Bonds, 8/1/1997 1,019,268
3,825,000 Minnesota State, GO State Various Purpose Bonds, 5.00% Bonds,
11/1/1997 3,868,796
2,000,000 Minnesota State, UT GO Refunding Bonds, 4.70% Bonds, 8/1/1997 2,014,740
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 8,750,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates
of Participation (Series 1996A), 4.25% TANs (Minnesota Tax and Aid
Anticipation Borrowing Program GTD), 2/21/1997 $ 8,769,474
9,500,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates
of Participation, Aid Anticipation Series 1996A, 4.50% TANs (Minne-
sota Tax and Aid Anticipation Borrowing Program GTD), 8/19/1997 9,540,066
6,600,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates
of Participation, Aid Anticipation Series 1996B, 4.50% TANs (Minne-
sota Tax and Aid Anticipation Borrowing Program GTD), 9/9/1997 6,633,722
1,515,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos., Inc.)/
(Norwest Bank Minnesota, Minneapolis LOC) 1,515,000
5,900,000 Minnetonka, MN, Multi-Family Housing Revenue Refunding Bonds
(Series 1995) Weekly VRDNs (Southampton Apartments Project
(MN))/(National Bank of Canada, Montreal LOC) 5,900,000
2,800,000 Moorhead, MN ISD, Certificates of Indebtedness, 3.35% TANs (Minne-
sota Tax and Aid Anticipation Borrowing Program GTD), 3/27/1997 2,800,374
2,250,000 (b)N. St. Paul-Maplewood, MN, ISD 622, MN Municipal Securities Trust
(Series 1996D), Floating Rate Certificate Weekly VRDNs (Norwest
Bank Minnesota, Minneapolis LIQ) 2,250,000
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/
(Banque Paribas, Paris LOC) 1,300,000
1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and
Hanson Printing Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 1,000,000
3,560,000 New Hope, MN Weekly VRDNs (Paddock Labs)/(Norwest Bank
Minnesota, Minneapolis LOC) 3,560,000
2,445,000 Olmsted County, MN Building Authority, Certificates of Participation
Weekly VRDNs (Human Services Infrastructure)/(Toronto-Dominion
Bank LOC) 2,445,000
2,405,000 Orono, MN ISD 278, GO Certificates of Indebtedness, (Series 1996),
3.53% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 3/13/1997 2,405,749
1,800,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/(Rabobank
Nederland, Utrecht LOC) 1,800,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 1,320,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank
Minnesota, Minneapolis LOC) $ 1,320,000
4,500,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic Steel,
Inc.)/(National City Bank, Cleveland, OH LOC) 4,500,000
1,435,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest
Bank Minnesota, Minneapolis LOC) 1,435,000
14,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs
(Mayo Foundation) 14,000,000
3,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs
(Mayo Foundation) 3,000,000
2,160,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.50%
CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory
Tender 11/13/1996 2,160,000
1,000,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.60%
CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory
Tender 11/20/1996 1,000,000
1,000,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing Corp)/
(KeyBank, N.A. LOC) 1,000,000
2,810,000 Rogers, MN IDA, IDRB Weekly VRDNs (DAC Development, LLC
Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,810,000
26,950,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs
(Koch Refining Co.) 26,950,000
7,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs
(St. Francis Regional Medical Center)/(Citibank NA, New York LOC) 7,000,000
1,500,000 Southern Minnesota Municipal Power Agency, 3.65% CP, Mandatory
Tender 2/25/1997 1,500,000
1,547,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue
Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,547,500
2,772,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue
Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,772,500
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 5,000,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs
(District Cooling St Paul, Inc.)/(Credit Local de France LOC) $ 5,000,000
500,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs
(United Way)/(First Bank NA, Minneapolis LOC) 500,000
1,100,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994)
Weekly VRDNs (Minnesota Children's Museum)/(First Bank NA,
Minneapolis LOC) 1,100,000
2,000,000 St. Paul, MN Housing & Redevelopment Authority, District Cooling
Revenue Bonds (1995 Series I) Weekly VRDNs (Credit Local de
France LOC) 2,000,000
1,300,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West Gate
Office)/(First Bank NA, Minneapolis LOC) 1,300,000
9,700,000 St. Paul, MN Water Utility, Variable Rate Demand Water Revenue
Bonds, Series 1994D Weekly VRDNs 9,700,000
1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount, Inc.)/
(NationsBank, South LOC) 1,000,000
4,500,000 Stillwater, MN ISD #834, GO Obligation Aid Anticipation Certificates
of Indebtedness (Series 1996), 4.10% TRANs (Minnesota Tax and Aid
Anticipation Borrowing Program GTD), 9/30/1997 4,505,802
6,500,000 University of Minnesota, (Series F), 3.75% TOBs (Regents of
University of Minnesota), Optional Tender 2/1/1997 6,500,000
4,205,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc.
Project)/(Norwest Bank Minnesota, Minneapolis LOC) 4,205,000
1,420,000 Victoria, MN, Industrial Development Revenue Bonds, (Series 1996B)
Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank Minnesota,
Minneapolis LOC) 1,420,000
2,315,000 Waseca, MN ISD #829, GO UT Notes, 3.57% TANs, 3/26/1997 2,315,349
12,910,000 Washington County, MN Housing & Redevelopment Authority,
(Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo
Bank Ltd., Osaka LOC) 12,910,000
1,405,000 Wells, MN, 4.00% TOBs (Stokely, Inc.)/(NBD Bank, Indiana LOC),
Optional Tender 12/1/1996 1,405,000
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
MINNESOTA -- CONTINUED
$ 1,105,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest
Bank Minnesota, Minneapolis LOC) $ 1,105,000
2,165,000 White Bear, MN, Variable Rate Demand Industrial Revenue Bonds
Weekly VRDNs (N.A. Ternes Project)/(Firstar Bank, Minnesota LOC) 2,165,000
2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet
National Bank, Providence, R.I. LOC) 2,000,000
Total 450,982,248
PUERTO RICO--1.3%
3,700,000 Puerto Rico Government Development Bank, 3.50% CP, Mandatory
Tender 12/12/1996 3,700,000
2,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental
Control Finance Authority, (Series 1994A), 3.80% CP (Inter American
University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory
Tender 1/13/1997 2,000,000
Total 5,700,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 456,682,248
</TABLE>
Securities that are subject to the Alternative Minimum Tax Represent 26.8%
of the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security rated by multiple NRSROs in different rating categories should
be identified as a First or Second Tier security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $18,115,000 which represents 4.0% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($453,057,193) at October 31, 1996.
The following acronym(s) are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
CDA -- Community Development Administration
COL -- Collateralized
CP -- Commercial Paper
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bond
INS -- Insured
INV -- Investment Agreement
ISD -- Independent School District
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SFM -- Single Family Mortgage
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 456,682,248
Cash 51,607,820
Income receivable 3,147,493
Receivable for shares sold 5,522
Total assets 511,443,083
LIABILITIES:
Payable for investments purchased $ 57,474,240
Payable for shares redeemed 170,140
Income distribution payable 600,768
Accrued expenses 140,742
Total liabilities 58,385,890
Net Assets for 453,057,193 shares outstanding $ 453,057,193
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$217,443,044 / 217,443,044 shares outstanding $1.00
CASH SERIES SHARES:
$235,614,149 / 235,614,149 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $15,092,730
EXPENSES:
Investment advisory fee $ 1,616,197
Administrative personnel and services fee 305,489
Custodian fees 65,627
Transfer and dividend disbursing agent fees and expenses 118,998
Directors'/Trustees' fees 4,530
Auditing fees 13,561
Legal fees 12,199
Portfolio accounting fees 98,168
Distribution services fee -- Cash Series Shares 897,310
Shareholder services fee -- Institutional Shares 561,584
Shareholder services fee -- Cash Series Shares 448,655
Share registration costs 22,700
Printing and postage 13,988
Insurance premiums 6,621
Taxes 1,608
Miscellaneous 3,063
Total expenses 4,190,298
Waivers --
Waiver of investment advisory fee $ (1,058,480)
Waiver of distribution services fee -- Cash Series Shares (448,655)
Waiver of shareholder services fee -- Institutional (561,584)
Shares
Total waivers (2,068,719)
Net expenses 2,121,579
Net investment income $12,971,151
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 12,971,151 $ 12,302,404
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (7,706,768) (8,269,227)
Cash Series Shares (5,264,383) (4,033,177)
Change in net assets resulting from distributions
to shareholders (12,971,151) (12,302,404)
SHARE TRANSACTIONS --
Proceeds from sale of shares 1,294,216,493 1,040,754,759
Net asset value of shares issued to shareholders in
payment
of distributions declared 5,465,115 4,384,166
Cost of shares redeemed (1,190,487,756) (955,314,263)
Change in net assets resulting from share transactions 109,193,852 89,824,662
Change in net assets 109,193,852 89,824,662
NET ASSETS:
Beginning of period 343,863,341 254,038,679
End of period $ 453,057,193 $ 343,863,341
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Minnesota Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund
offers two classes of shares: Institutional Shares and Cash Series Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees (the
"Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940. Additional
information on each restricted security held at October 31, 1996 is as
follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Dakota County, Washington County & Anoka City,
MN Housing & Redevelopment Authority, Merlots - Series H 08/29/96 3,000,000
Minneapolis/St. Paul, MN Housing Finance Board,
SMF Revenue Bonds (Series D) 10/01/96 4,240,000
Eden Prairie, MN ISD 272, MN Insured Municipal
Securities Trust (Series 1996A) 07/11/96 1,000,000
Eden Prairie, MN ISD 272, MN Insured Municipal
Securities Trust (Series 1996B) 07/11/96 1,125,000
MN Insured Municipal Securities Trust Series,
Series 1996H, (St. Louis Park, MN Health Care
Facilities) Floating Rate Certificates 07/01/96 2,500,000
MN Municipal Securities Trust Series, Series 1996H,
(Rosemount, MN I.S.D. 196) Floating Rate Certificates 05/01/96 4,000,000
N. St. Paul-Maplewood-Oakdale ISD 622,
MN Insured Municipal Securities Trust (Series 1996D) 07/11/96 2,250,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$453,057,193. Transactions is shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1996 1995
<S> <C> <C>
Shares sold 547,719,129 546,893,719
Shares issued to shareholders in payment of distributions 301,311 425,031
declared
Shares redeemed (542,969,267) (494,630,825)
Net change resulting from Institutional Share transactions 5,051,173 52,687,925
<CAPTION>
YEAR ENDED OCTOBER 31,
CASH SERIES SHARES 1996 1995
<S> <C> <C>
Shares sold 746,497,364 493,861,040
Shares issued to shareholders in payment of distributions 5,163,804 3,959,135
declared
Shares redeemed (647,518,489) (460,683,438)
Net change resulting from Cash Series Share transactions 104,142,679 37,136,737
Net change resulting from fund share transactions 109,193,852 89,824,662
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to .40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Cash Series Shares. The Plan provides
that the Fund may incur distribution expenses up to .50% of the average
daily net assets of the Cash Series Shares, annually, to compensate FSC. FSC
may voluntarily choose to waive a portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to .25% of average daily net assets of each class of shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. For fiscal year ended,
October 31, 1996, the Institutional Shares fully waived its shareholder
services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $635,984,740 and $593,880,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 73.8% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 7.8% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(MINNESOTA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Minnesota Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996, the related statement of
operations for the year then ended, and the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights (see pages 2 and 14 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Minnesota Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended, and the changes in its net assets for each of the two
years in the period then ended and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
Minnesota 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229402
0082715A-IS (12/96)
MINNESOTA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Minnesota Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229873
0082715B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
MINNESOTA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 1
Share Ownership 4
Trustees Compensation 4
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
Investment Adviser 5
Advisory Fees 6
BROKERAGE TRANSACTIONS 6
OTHER SERVICES 6
Fund Administration 6
Custodian and Portfolio Accountant 6
Transfer Agent 6
Independent Public Accountants 7
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 7
DETERMINING NET ASSET VALUE 7
REDEMPTION IN KIND 8
MASSACHUSETTS PARTNERSHIP LAW 8
THE FUND'S TAX STATUS 8
PERFORMANCE INFORMATION 8
Yield 8
Effective Yield 8
Tax-Equivalent Yield 9
Tax-Equivalency Table 9
Total Return 10
Performance Comparisons 10
Economic and Market Information 10
ABOUT FEDERATED INVESTORS 10
Mutual Fund Market 11
Institutional Clients 11
Trust Organizations 11
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 11
APPENDIX 12
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
MINNESOTA INVESTMENT RISKS
Minnesota has a diversified economy, the structure of which has
increasingly come to resemble the nation as a whole. Minnesota's emergence
as a regional center is evidenced by the comparatively high rates of
employment growth in trade, finance, insurance, and service industries over
the past ten years. Agriculture, which had been severely affected since
1981, appears to be improving with land values now stabilizing at levels
seen in the early 1980's. State unemployment rates remain below the
national level; and personal income has grown more rapidly than that of the
nation as a whole, with personal income per capita remaining slightly above
the national average.
Following a period of volatility in the early 1980's, Minnesota's fiscal
operations have been recently characterized by a strong financial position
and moderate debt burden. Minnesota has disciplined its budget process
through frequent reviews of revenue forecasts and timely legislative
action. For fiscal 1997, the state expects to achieve a balanced budget
without revenue increases or one-time revenues. In addition, the state
maintains two statutory reserves for cash flow and budgetary purposes
which, together, represent over 6% of General Fund revenues. The state's
budget forecast calls for additions to be made to these reserves in fiscal
1997.
Minnesota's debt position is excellent with nearly exclusive use of general
obligation bonds. Amortization of general obligation debt is rapid, with
nearly three-quarters due within ten years, fully characteristic of high
quality borrowers. Debt service requirements are a mere 3% of annual
expenditures.
The overall credit quality of the state is further demonstrated by its debt
ratings. In 1996, Minnesota was upgradedto an Aaa rating from Moody's
Investors Service, Inc. Standard & Poor's Ratings Group rates the state
AA+.
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 directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. During
the period any reverse repurchase agreements are outstanding, the Fund
will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Minnesota municipal securities or
temporary investments or enter into repurchase agreements, in
accordance with its investment objective, policies, limitations, or
its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships , although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities subject to restrictions on resale under federal
securities law, except for certain restricted securities which meet
the criteria for liquidity established by the Trustees.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry, or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S.
government , its agencies, or instrumentalities, or instruments
secured by these money market instruments, such as repurchase
agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in illiquid securities including certain restricted securities not
determined to be liquid under criteria established by the Trustees and
repurchase agreements providing for settlement in more than seven days
after notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 12, 1996, the following shareholders of record owned 5% or
more of the outstanding and Cash Series Shares of the Minnesota Municipal
Cash Trust: FBS Investment Services, Inc., Minneapolis, MN, owned
approximately 45,066,566 shares (19.90%); Regional Operations Group,
Minneapolis, MN, owned approximately 40,763,130 shares (18.00%); Voyager
Fund Managers, Minneapolis, MN, owned approximately 18,195,111 shares
(8.03%); JURAN & Moody, Inc., Saint Paul, MN, owned approximately
17,732,937 shares (7.83%); Piper Jaffray Inc., Minneapolis, MN, owned
approximately 15,723,362 shares (6.94%); and Primevest Financial Services,
Inc., St. Cloud MN, owned approximately 12,124,781 shares (5.35%).
As of December 12, 1996, the following shareholders of record owned 5% or
more of the outstanding and Institutional Service Shares of the Minnesota
Municipal Cash Trust: VAR & Company, Saint Paul, MN, owned approximately
138,835,825 shares (61.75%); and Resource Bank & Trust Company,
Minneapolis, MN, owned approximately 37,122,676 shares (16.61%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611
$104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934
$115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996, 1995, and 1994, the adviser earned
$1,616,197, $1,357,870, and $1,025,614, respectively, of which $1,058,480,
$906,031, and $868,068, respectively, were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996,
1995, and 1994, the Administrators earned $305,489, $256,977, and $249,373,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Cash Series Shares, the Fund has 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 adopted a Shareholder Services Agreement with
respect to Cash Series Shares and Institutional Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities 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 Plan, the Trustees expect 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 seeking to achieve its investment objectives. By
identifying potential investors whose needs are served by the Fund `s
objectives, and properly servicing these accounts, the Fund may be able 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 year ended October 31, 1996, payments in the amount of
$897,310 were made pursuant to the Plan for Cash Series Shares, of which
$448,655 was voluntarily waived. In addition, for the fiscal year ended
October 31, 1996, the Fund paid shareholder service fees in the amounts of
$448,655 and $561,584 for Cash Series Shares and Institutional Shares,
respectively, all of which was voluntarily waived for Cash Series Shares.
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 0.50% 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.
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.
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, 1996, the yields for Cash Series
Shares and Institutional Shares were 2.91% and 3.41%, 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, 1996, the effective yields for
Cash Series Shares and Institutional Shares were 2.95% and 3.47%,
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 48.10% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yields
for Cash Series Shares and Institutional Shares were 5.61% and 6.59%,
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 1996
STATE OF MINNESOTA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 36.50% 39.50% 44.50% 48.10%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.95% 2.36% 2.48% 2.70% 2.89%
2.00% 2.60% 3.15% 3.31% 3.60% 3.85%
2.50% 3.25% 3.94% 4.13% 4.50% 4.82%
3.00% 3.90% 4.72% 4.96% 5.41% 5.78%
3.50% 4.55% 5.51% 5.79% 6.31% 6.74%
4.00% 5.19% 6.30% 6.61% 7.21% 7.71%
4.50% 5.84% 7.09% 7.44% 8.11% 8.67%
5.00% 6.49% 7.87% 8.26% 9.01% 9.63%
5.50% 7.14% 8.66% 9.09% 9.91% 10.60%
6.00% 7.79% 9.45% 9.92% 10.81% 11.56%
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.
For the one-year, five-year and period from January 7, 1991 (date of
initial public investment) to October 31, 1996, the average annual total
returns were 2.97%, 2.67%, and 2.90%, respectively, for Cash Series Shares.
For the one-year, five-year and period from September 10, 1990 (date of
initial public investment) to October 31, 1996, the average annual total
returns were 3.49%, 3.10%, and 3.47%, respectively, for Institutional
Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1)The underlying issuer/obligor/guarantor has other outstanding debt
rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2)The underlying issuer/obligor/guarantor has other outstanding debt
rated `AA'' by S&P or ``AA'' by Moody's.
NR(3)The underlying issuer/obligor/guarantor has other outstanding debt
rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of New Jersey Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term New Jersey municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of New Jersey, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and New Jersey state income
tax imposed upon non-corporate taxpayers consistent with stability of
principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
New Jersey Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
HOW TO REDEEM SHARES 9
ACCOUNT AND SHARE INFORMATION 10
TAX INFORMATION 11
Federal Income Tax 11
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
PERFORMANCE INFORMATION 12
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 13
FINANCIAL STATEMENTS 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26
ADDRESSES 27
</TABLE>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.23%
12b-1 Fee None
Total Other Expenses 0.32%
Shareholder Services Fee (after waiver)(2) 0.05%
Total Operating Expenses(3) 0.55%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.92% absent the voluntary
waivers of portions of the management fee and shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $6 $18 $31 $69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993** 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(b) 3.17% 3.46% 2.26% 2.22% 2.96% 3.87%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.54% 0.46% 0.45% 0.27%*
Net investment income 3.13% 3.41% 2.22% 2.19% 2.86% 4.19%*
Expense waiver/reimbursement(c) 0.37% 0.41% 0.39% 0.45% 0.51% 0.67%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $115,722 $86,944 $62,984 $66,346 $57,657 $39,423
</TABLE>
* Computed on an annualized basis.
** Prior to October 6, 1993, the fund provided three classes of shares.
(a) Reflects operations for the period from December 13, 1990 (date of
initial public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Shares and Institutional Service Shares. This
prospectus relates only to Institutional Shares of the Fund, which are
designed primarily for financial institutions acting in an agency or
fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term municipal
securities. The Fund may not be a suitable investment for retirement plans
or for non-New Jersey taxpayers because it invests in municipal securities
of that state. A minimum initial investment of $25,000 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and New Jersey state income tax imposed upon
non-corporate taxpayers 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 New
Jersey state income tax imposed upon non-corporate taxpayers. (Federal
regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
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 New Jersey and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and ("New Jersey Municipal Securities"). Examples
of New Jersey Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 New Jersey
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 New Jersey 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain New
Jersey Municipal Securities is subject to the federal alternative minimum
tax.
NEW JERSEY MUNICIPAL SECURITIES
New Jersey Municipal Securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
New Jersey Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of New Jersey 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 New Jersey Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 New Jersey 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 New Jersey Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in New Jersey 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 New Jersey 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 New Jersey 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. Due to these
considerations, the Fund's concentration in New Jersey Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 15%
of the value of its total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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 the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund 's investment adviser or
its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate as which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New
Jersey Municipal Cash Trust -- Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: New Jersey Municipal Cash
Trust -- Institutional Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next
day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 2, 1996, COM II, Fleet Bank National Association, acting in
various capacities for numerous accounts owned 30.15% of the Institutional
Shares of the Fund and Fiduciary Trust Company International owned 38.75% of
the Institutional Service Shares of the Fund. These companies may, for certain
purposes, be deemed to control the shares of the Fund and may be able to affect
the outcome of certain matters presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
New Jersey. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
NEW JERSEY TAXES. Under existing New Jersey laws, distributions made by the
Fund will not be subject to New Jersey income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest or gain from obligations issued by
or on behalf of the State of New Jersey or any county, municipality, school
or other district, agency, authority, commission, instrumentality, public
corporation, body corporate and politic or political subdivision of New
Jersey; or (ii) interest or gain from obligations (such as obligations of
the United States) that are statutorily free from New Jersey taxation under
federal or New Jersey state laws. Conversely, to the extent that
distributions by the Fund are attributable to other types of obligations,
such distributions will be subject to New Jersey income taxes.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey Corporation Business Tax or New Jersey Corporation
Income Tax.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily
to financial institutions acting in an agency capacity and are subject to a
minimum initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Service Shares are distributed under a 12b-1 Plan adopted by
the Fund and also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(b) 3.07% 3.36% 2.16% 2.12% 2.86% 3.82%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.65% 0.65% 0.56% 0.55% 0.35%*
Net investment income 3.03% 3.28% 2.19% 2.08% 2.69% 4.11%*
Expense waiver/reimbursement(c) 0.37% 0.41% 0.41% 0.45% 0.51% 0.69%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $28,807 $29,817 $36,704 $21,005 $26,844 $17,709
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 13, 1990 (date of
initial public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 99.3%
NEW JERSEY -- 99.3%
$ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs
(Marine Midland Bank N.A., Buffalo, NY LOC) $ 700,000
2,000,000 Atlantic Highlands, NJ, 4.20% BANs, 1/31/1997 2,001,702
2,400,000 Bayonne, NJ, 4.25% BANs, 12/15/1996 2,401,573
1,258,375 Berkeley Township, NJ, 4.25% BANs, 5/28/1997 1,260,784
1,625,000 Bordentown, NJ, 4.50% BANs, 6/24/1997 1,628,515
3,731,745 Caldwell Borough, NJ, 4.125% BANs, 12/6/1996 3,733,726
1,900,000 Camden County, NJ Improvement Authority, (Series 1995) Weekly
VRDNs (Jewish Federation of Southern Jersey, Inc.)/(National
Westminster Bank, PLC, London LOC) 1,900,000
4,900,000 (b)Camden County, NJ Improvement Authority, (Series 1996) Weekly
VRDNs (Parkview Redevelopment Housing Project)/(General Electric
Capital Corp. LOC) 4,900,000
5,000,000 (b)Clipper New Jersey Tax-Exempt Trust, (Series 1996-2) Weekly VRDNs
(New Jersey Housing & Mortgage Financing Authority)/(MBIA INS)/
(State Street Bank and Trust Co. LIQ) 5,000,000
4,000,000 Essex County, NJ Improvement Authority, Project Revenue Bonds
(Series 1995) Weekly VRDNs (Essex County, NJ)/(AMBAC INS)/
(Morgan Guaranty Trust Co., New York LIQ) 4,000,000
1,256,000 Ewing Township, NJ, 4.25% BANs, 10/24/1997 1,260,707
1,004,000 Florence Township, NJ Board of Education, 4.15% TANs, 12/31/1996 1,004,717
2,500,000 Galloway Township, NJ, (Series B), 4.00% BANs, 3/13/1997 2,503,491
1,041,378 High Bridge Borough, NJ, 4.50% BANs, 9/5/1997 1,045,599
1,300,000 Long Branch, NJ, 4.00% BANs, 12/13/1996 1,300,988
3,000,000 Lower Township, NJ, 4.50% BANs, 6/27/1997 3,006,571
3,835,500 Mahwah Township, NJ, 4.25% BANs, 8/22/1997 3,845,880
1,200,000 Mercer County, NJ Improvement Authority Weekly VRDNs (Mercer
County, NJ Pooled Governmental Loan Program)/(Credit Suisse,
Zurich LOC) 1,200,000
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
NEW JERSEY -- CONTINUED
$ 1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) $ 1,500,000
1,200,000 Morristown, NJ, 3.80% TANs, 2/14/1997 1,200,000
1,138,681 New Brunswick, NJ, 4.00% BANs, 12/23/1996 1,139,372
9,100,000 New Jersey EDA Weekly VRDNs (Center-for-Aging --
Applewood Estates)/(Banque Paribas, Paris LOC) 9,100,000
2,400,000 New Jersey EDA Weekly VRDNs (Church and Dwight, Inc.)/
(Bank of Nova Scotia, Toronto LOC) 2,400,000
2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of
Scotland, Edinburgh LOC) 2,500,000
5,553,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/
(First National Bank of Maryland, Baltimore LOC) 5,553,000
4,173,000 New Jersey EDA Weekly VRDNs (Molins Machines)/
(Nationsbank, N.A. LOC) 4,173,000
1,320,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chase Manhattan
Bank N.A., New York LOC) 1,320,000
2,100,000 New Jersey EDA Weekly VRDNs (YM-YWHA of Bergen County, NJ)/
(Bank of New York, New York LOC) 2,100,000
1,440,000 New Jersey EDA, (1994 Series A), 4.30% TOBs (A.F.L. Quality, Inc.)/
(Fleet Bank N.A. LOC), Optional Tender 6/30/1997 1,440,000
500,000 New Jersey EDA, (1994 Series B), 4.30% TOBs (Two Univac, L.L.C.)/
(Fleet Bank N.A. LOC), Optional Tender 6/30/1997 500,000
2,300,000 New Jersey EDA, (Series 1984) Weekly VRDNs (Burmah-Castrol Inc.
Project)/(Barclays Bank PLC, London LOC) 2,300,000
4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/(Banque
Paribas, Paris LOC) 4,100,000
4,100,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield
Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,100,000
300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban
Renewal)/(National Westminster Bank, PLC, London LOC) 300,000
2,100,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington
Corners Associates)/(First Union National Bank, North LOC) 2,100,000
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
NEW JERSEY -- CONTINUED
$ 1,040,000 New Jersey EDA, (Series 1992 Q) Weekly VRDNs (Physical
Accoustics, Inc.)/(Banque Nationale de Paris LOC) $ 1,040,000
1,030,000 New Jersey EDA, (Series 1992 Z) Weekly VRDNs (West-Ward
Pharmaceuticals)/(Banque Nationale de Paris LOC) 1,030,000
1,040,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin Corp.)/
(Banque Nationale de Paris LOC) 1,040,000
2,105,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem Realty)/
(Banque Nationale de Paris LOC) 2,105,000
2,835,000 New Jersey EDA, (Series 1992L) Weekly VRDNs (Kent Place School)/
(Banque Nationale de Paris LOC) 2,835,000
1,500,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra Corporation
Project)/(Chase Manhattan Bank N.A., New York LOC) 1,500,000
5,100,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Hillcrest Health
Service System, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 5,100,000
3,000,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International Vitamin
Corporation Project)/(National Westminster Bank, PLC, London LOC) 3,000,000
1,250,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel
Co., Inc.)/(First Union National Bank, North LOC) 1,250,000
885,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, Inc.)/
(Banque Nationale de Paris LOC) 885,000
2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs
(Atlantic States Cast Iron Pipe Company)/(Amsouth Bank N.A.,
Birmingham LOC) 2,815,000
1,300,000 New Jersey EDA, Economic Development Bonds, 1987 Project
Weekly VRDNs (United Jewish Community of Bergen County)/
(Bank of New York, New York LOC) 1,300,000
4,600,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983) Weekly
VRDNs (Trailer Marine Transport Corporation)/(Chase Manhattan
Bank N.A., New York LOC) 4,600,000
3,840,000 (b)New Jersey Housing & Mortgage Financing Authority, CDC
Municipal Products Class A Certificates (Series 1996B) Weekly
VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ) 3,840,000
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
NEW JERSEY -- CONTINUED
$ 1,250,000 Passaic County, NJ Utilities Authority, (Series 1996B), 3.95% BANs
(MBIA INS), 9/3/1997 $ 1,250,000
1,750,000 Pine Beach, NJ, 3.625% BANs, 2/13/1997 1,751,077
1,490,000 Pine Hill Borough, NJ, (Series A), 4.14% BANs, 8/7/1997 1,491,530
1,250,000 Pine Hill Borough, NJ, 3.99% BANs, 8/8/1997 1,250,368
1,135,873 Point Pleasant, NJ, 4.375% BANs, 10/3/1997 1,139,637
10,000,000 Port Authority of New York and New Jersey, (Series 1991-4)
Weekly VRDNs 10,000,000
5,700,000 Trenton, NJ, 4.125% BANs, 12/20/1996 5,702,698
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $143,444,935
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 28% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security rated by multiple NRSROs in different rating categories should
be identified as a First or Second Tier security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<C> <C>
90.52% 9.48%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $13,740,000 which represents 9.5% of net asset.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($144,528,891) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
BANs -- Bond Anticipation Notes
EDA -- Economic Development Authority
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCFA -- Pollution Control Finance Authority
PLC -- Public Limited Company
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 143,444,935
Cash 235,885
Income receivable 1,210,558
Receivable for shares sold 2,537
Total assets 144,893,915
LIABILITIES:
Payable for shares redeemed $ 44,528
Income distribution payable 276,514
Accrued expenses 43,982
Total liabilities 365,024
Net Assets for 144,528,891 shares outstanding $ 144,528,891
NET ASSET VALUE:
INSTITUTIONAL SHARES:
$115,722,003 / 115,722,003 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$28,806,888 / 28,806,888 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,624,312
EXPENSES:
Investment advisory fee $ 501,943
Administrative personnel and services fee 155,108
Custodian fees 23,599
Transfer and dividend disbursing agent fees and expenses 41,701
Directors'/Trustees' fees 2,113
Auditing fees 13,561
Legal fees 9,908
Portfolio accounting fees 53,793
Distribution services fee -- Institutional Service Shares 24,872
Shareholder services fee -- Institutional Shares 251,550
Shareholder services fee -- Institutional Service Shares 62,181
Share registration costs 24,542
Printing and postage 11,780
Insurance premiums 3,625
Taxes 2,543
Miscellaneous 4,078
Total expenses 1,186,897
Waivers --
Waiver of investment advisory fee $ (215,343)
Waiver of distribution services fee --
Institutional Service Shares (24,872)
Waiver of shareholder services fee -- Institutional Shares (201,240)
Waiver of shareholder services fee --
Institutional Service Shares (24,872)
Total waivers (466,327)
Net expenses 720,570
Net investment income $ 3,903,742
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,903,742 $ 3,642,951
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income:
Institutional Shares (3,146,674) (2,752,708)
Institutional Service Shares (757,068) (890,243)
Change in net assets resulting from distributions to
shareholders (3,903,742) (3,642,951)
SHARE TRANSACTIONS --
Proceeds from sale of shares 416,887,554 425,149,193
Net asset value of shares issued to shareholders in payment of
distributions declared 630,451 545,318
Cost of shares redeemed (389,750,630) (408,621,137)
Change in net assets resulting from share transactions 27,767,375 17,073,374
Change in net assets 27,767,375 17,073,374
NET ASSETS:
Beginning of period 116,761,516 99,688,142
End of period $ 144,528,891 $ 116,761,516
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New Jersey Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and New Jersey state income tax consistent with stability
of principal and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees (the
"Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Camden County NJ,
Improvement Authority 7/10/1996 $4,900,000
Clipper New Jersey
Tax-Exempt Trust 5/1/1996 5,006,316
New Jersey Housing &
Mortgage Financing Authority 7/24/1996 3,845,219
</TABLE>
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
INSTITUTIONAL SHARES SHARES SHARES
<S> <C> <C>
Shares sold 334,848,832 334,240,209
Shares issued to shareholders in payment of distributions declared 218,331 15,613
Shares redeemed (306,289,398) (310,295,248)
Net change resulting from Institutional share transactions 28,777,765 23,960,574
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 82,038,722 90,908,984
Shares issued to shareholders in payment of distributions declared 412,120 529,705
Shares redeemed (83,461,232) (98,325,889)
Net change resulting from Institutional Service share transactions (1,010,390) (6,887,200)
Net change resulting from share transactions 27,767,375 17,073,374
</TABLE>
At October 31, 1996, capital paid-in aggregated $144,528,891.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will reimburse Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Institutional Service Shares. The Plan
provides that the Fund may incur distribution expenses up to 0.10% of the
average daily net assets of the Institutional Service Shares, annually, to
reimburse FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative
service expenses of $78,170 were borne initially by Adviser. The Fund has
agreed to reimburse Adviser for the organizational and/or start-up
administrative expenses at an annual rate of .005% and .01% of average daily
net assets, respectively, until expenses initially borne are fully
reimbursed or the expiration of five years after December 10, 1990 (the date
the Fund became effective), whichever occurs earlier. For the period ended
October 31, 1996, the Fund paid $995 pursuant to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $207,235,000 and $198,435,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 66.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 9.2% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(New Jersey Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
of investments, as of October 31, 1996, the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights (see pages 2 and 13 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
New Jersey Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
New Jersey 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229600
0100802A-IS (12/96)
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of New Jersey Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term New Jersey
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of New
Jersey, or its political subdivisions and financing authorities, but which
provide current income exempt from federal regular income tax and New Jersey
state income tax imposed upon non-corporate taxpayers consistent with
stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
New Jersey Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
TAX INFORMATION 13
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 14
PERFORMANCE INFORMATION 14
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 15
FINANCIAL STATEMENTS 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28
ADDRESSES 29
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.23%
12b-1 Fee (after waiver)(2) 0.00%
Total Other Expenses 0.42%
Shareholder Services Fee (after waiver)(3) 0.15%
Total Operating Expenses(4) 0.65%
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the
12b-1 fee. The distributor can terminate this voluntary waiver at any time
at its sole discretion. The maximum 12b-1 fee is 0.10%.
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(4) The Total Operating Expenses would have been 1.02% absent the voluntary
waivers of portions of the management fee and shareholder services fee and
the voluntary waiver of the 12b-1 fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service
Shares of the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Fund
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $7 $21 $36 $81
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(b) 3.07% 3.36% 2.16% 2.12% 2.86% 3.82%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.65% 0.65% 0.56% 0.55% 0.35%*
Net investment income 3.03% 3.28% 2.19% 2.08% 2.69% 4.11%*
Expense waiver/reimbursement(c) 0.37% 0.41% 0.41% 0.45% 0.51% 0.69%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $28,807 $29,817 $36,704 $21,005 $26,844 $17,709
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 13, 1990 (date of
initial public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Service Shares of the Fund, which
are designed primarily for financial institutions acting in an agency
capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term municipal
securities. The Fund may not be a suitable investment for retirement plans
or for non-New Jersey taxpayers because it invests in municipal securities
of that state. A minimum initial investment of $25,000 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and New Jersey state income tax imposed upon
non-corporate taxpayers 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 New
Jersey state income tax imposed upon non-corporate taxpayers. (Federal
regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
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 New Jersey and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and New Jersey state income tax imposed upon
non-corporate taxpayers ("New Jersey Municipal Securities"). Examples of New
Jersey Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 New Jersey
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 New Jersey 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain New
Jersey Municipal Securities is subject to the federal alternative minimum
tax.
NEW JERSEY MUNICIPAL SECURITIES
New Jersey Municipal Securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
New Jersey Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of New Jersey 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 New Jersey Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 New Jersey 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 New Jersey Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in New Jersey 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 New Jersey 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 New Jersey 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. Due to these
considerations, the Fund's concentration in New Jersey Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 15%
of the value of total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to 0.40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of up to .10% of the average daily net
asset value of the Fund. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset
value of its shares to obtain certain personal services for shareholders and
to maintain shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services
directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon shares owned
by their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund 's investment adviser or
its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate as which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Institutional Service Shares from the value of Fund assets attributable
to Institutional Service Shares, and dividing the remainder by the number of
Institutional Service 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $25,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling 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 in order to begin earning dividends that same
day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: New Jersey Municipal Cash
Trust--Institutional Service Shares; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot
be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: New Jersey Municipal Cash
Trust -- Institutional Service Shares. Please include an account number on
the check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Services Company
receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Under
limited circumstances, arrangements may be made with the distributor for
same-day payment of proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that method
of payment has cleared. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
<./R>
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 2, 1996, COM II, Fleet Bank National Association, acting in
various capacities for numerous accounts owned 30.15% of the Institutional
Shares of the Fund and Fiduciary Trust Company International owned 38.75% of
the Institutional Service Shares of the Fund. These companies may, for certain
purposes, be deemed to control the shares of the Fund and may be able to affect
the outcome of certain matters presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
New Jersey. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
NEW JERSEY TAXES. Under existing New Jersey laws, distributions made by the
Fund will not be subject to New Jersey income taxes to the extent that such
dividends qualify as exempt interest dividends under the Internal Revenue
Code, and represent (i) interest or gain from obligations issued by or on
behalf of the State of New Jersey or any county, municipality, school or
other district agency, authority, commission, instrumentality, public
corporation, body corporate and politic or political subdivision of New
Jersey; or (ii) interest or gain from obligations (such as obligations of
the United States) that are statutorily free from New Jersey taxation under
federal or New Jersey state laws. Conversely, to the extent that the
distributions made by the Fund are derived from other types of obligations,
such dividends will be subject to New Jersey personal income taxes.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey Corporation Business Tax or New Jersey Corporation
Income Tax.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares
that are sold primarily to financial institutions acting in a fiduciary
capacity. Institutional Shares are sold at net asset value and are subject
to a Shareholder Services Agreement. Investments in Institutional Shares are
subject to a minimum initial investment of $25,000 within a 90-day period.
Institutional Service Shares and Institutional Shares are subject to certain
of the same expenses. Expense differences, however, between Institutional
Service Shares and Institutional Shares may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
NEW JERSEY MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993** 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(b) 3.17% 3.46% 2.26% 2.22% 2.96% 3.87%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.54% 0.46% 0.45% 0.27%*
Net investment income 3.13% 3.41% 2.22% 2.19% 2.86% 4.19%*
Expense waiver/reimbursement(c) 0.37% 0.41% 0.39% 0.45% 0.51% 0.67%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $115,722 $86,944 $62,984 $66,346 $57,657 $39,423
</TABLE>
* Computed on an annualized basis.
** Prior to October 6, 1993, the fund provided three classes of shares.
(a) Reflects operations for the period from December 13, 1990 (date of
initial public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 99.3%
NEW JERSEY -- 99.3%
$ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs
(Marine Midland Bank N.A., Buffalo, NY LOC) $ 700,000
2,000,000 Atlantic Highlands, NJ, 4.20% BANs, 1/31/1997 2,001,702
2,400,000 Bayonne, NJ, 4.25% BANs, 12/15/1996 2,401,573
1,258,375 Berkeley Township, NJ, 4.25% BANs, 5/28/1997 1,260,784
1,625,000 Bordentown, NJ, 4.50% BANs, 6/24/1997 1,628,515
3,731,745 Caldwell Borough, NJ, 4.125% BANs, 12/6/1996 3,733,726
1,900,000 Camden County, NJ Improvement Authority, (Series 1995) Weekly
VRDNs (Jewish Federation of Southern Jersey, Inc.)/(National
Westminster Bank, PLC, London LOC) 1,900,000
4,900,000 (b)Camden County, NJ Improvement Authority, (Series 1996) Weekly
VRDNs (Parkview Redevelopment Housing Project)/(General Electric
Capital Corp. LOC) 4,900,000
5,000,000 (b)Clipper New Jersey Tax-Exempt Trust, (Series 1996-2) Weekly VRDNs
(New Jersey Housing & Mortgage Financing Authority)/(MBIA INS)/
(State Street Bank and Trust Co. LIQ) 5,000,000
4,000,000 Essex County, NJ Improvement Authority, Project Revenue Bonds
(Series 1995) Weekly VRDNs (Essex County, NJ)/(AMBAC INS)/
(Morgan Guaranty Trust Co., New York LIQ) 4,000,000
1,256,000 Ewing Township, NJ, 4.25% BANs, 10/24/1997 1,260,707
1,004,000 Florence Township, NJ Board of Education, 4.15% TANs, 12/31/1996 1,004,717
2,500,000 Galloway Township, NJ, (Series B), 4.00% BANs, 3/13/1997 2,503,491
1,041,378 High Bridge Borough, NJ, 4.50% BANs, 9/5/1997 1,045,599
1,300,000 Long Branch, NJ, 4.00% BANs, 12/13/1996 1,300,988
3,000,000 Lower Township, NJ, 4.50% BANs, 6/27/1997 3,006,571
3,835,500 Mahwah Township, NJ, 4.25% BANs, 8/22/1997 3,845,880
1,200,000 Mercer County, NJ Improvement Authority Weekly VRDNs (Mercer
County, NJ Pooled Governmental Loan Program)/(Credit Suisse,
Zurich LOC) 1,200,000
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
NEW JERSEY -- CONTINUED
$ 1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/
(Wachovia Bank of NC, N.A., Winston-Salem LOC) $ 1,500,000
1,200,000 Morristown, NJ, 3.80% TANs, 2/14/1997 1,200,000
1,138,681 New Brunswick, NJ, 4.00% BANs, 12/23/1996 1,139,372
9,100,000 New Jersey EDA Weekly VRDNs (Center-for-Aging --
Applewood Estates)/(Banque Paribas, Paris LOC) 9,100,000
2,400,000 New Jersey EDA Weekly VRDNs (Church and Dwight, Inc.)/
(Bank of Nova Scotia, Toronto LOC) 2,400,000
2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of
Scotland, Edinburgh LOC) 2,500,000
5,553,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/
(First National Bank of Maryland, Baltimore LOC) 5,553,000
4,173,000 New Jersey EDA Weekly VRDNs (Molins Machines)/
(Nationsbank, N.A. LOC) 4,173,000
1,320,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chase Manhattan
Bank N.A., New York LOC) 1,320,000
2,100,000 New Jersey EDA Weekly VRDNs (YM-YWHA of Bergen County, NJ)/
(Bank of New York, New York LOC) 2,100,000
1,440,000 New Jersey EDA, (1994 Series A), 4.30% TOBs (A.F.L. Quality, Inc.)/
(Fleet Bank N.A. LOC), Optional Tender 6/30/1997 1,440,000
500,000 New Jersey EDA, (1994 Series B), 4.30% TOBs (Two Univac, L.L.C.)/
(Fleet Bank N.A. LOC), Optional Tender 6/30/1997 500,000
2,300,000 New Jersey EDA, (Series 1984) Weekly VRDNs (Burmah-Castrol Inc.
Project)/(Barclays Bank PLC, London LOC) 2,300,000
4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/(Banque
Paribas, Paris LOC) 4,100,000
4,100,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield
Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,100,000
300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban
Renewal)/(National Westminster Bank, PLC, London LOC) 300,000
2,100,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington
Corners Associates)/(First Union National Bank, North LOC) 2,100,000
NEW JERSEY MUNICIPAL CASH TRUST
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
NEW JERSEY -- CONTINUED
$ 1,040,000 New Jersey EDA, (Series 1992 Q) Weekly VRDNs (Physical
Accoustics, Inc.)/(Banque Nationale de Paris LOC) $ 1,040,000
1,030,000 New Jersey EDA, (Series 1992 Z) Weekly VRDNs (West-Ward
Pharmaceuticals)/(Banque Nationale de Paris LOC) 1,030,000
1,040,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin Corp.)/
(Banque Nationale de Paris LOC) 1,040,000
2,105,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem Realty)/
(Banque Nationale de Paris LOC) 2,105,000
2,835,000 New Jersey EDA, (Series 1992L) Weekly VRDNs (Kent Place School)/
(Banque Nationale de Paris LOC) 2,835,000
1,500,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra Corporation
Project)/(Chase Manhattan Bank N.A., New York LOC) 1,500,000
5,100,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Hillcrest Health
Service System, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 5,100,000
3,000,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International Vitamin
Corporation Project)/(National Westminster Bank, PLC, London LOC) 3,000,000
1,250,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel
Co., Inc.)/(First Union National Bank, North LOC) 1,250,000
885,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, Inc.)/
(Banque Nationale de Paris LOC) 885,000
2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs
(Atlantic States Cast Iron Pipe Company)/(Amsouth Bank N.A.,
Birmingham LOC) 2,815,000
1,300,000 New Jersey EDA, Economic Development Bonds, 1987 Project
Weekly VRDNs (United Jewish Community of Bergen County)/
(Bank of New York, New York LOC) 1,300,000
4,600,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983) Weekly
VRDNs (Trailer Marine Transport Corporation)/(Chase Manhattan
Bank N.A., New York LOC) 4,600,000
3,840,000 (b)New Jersey Housing & Mortgage Financing Authority, CDC
Municipal Products Class A Certificates (Series 1996B) Weekly
VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ) 3,840,000
NEW JERSEY MUNICIPAL CASH TRUST
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
NEW JERSEY -- CONTINUED
$ 1,250,000 Passaic County, NJ Utilities Authority, (Series 1996B), 3.95% BANs
(MBIA INS), 9/3/1997 $ 1,250,000
1,750,000 Pine Beach, NJ, 3.625% BANs, 2/13/1997 1,751,077
1,490,000 Pine Hill Borough, NJ, (Series A), 4.14% BANs, 8/7/1997 1,491,530
1,250,000 Pine Hill Borough, NJ, 3.99% BANs, 8/8/1997 1,250,368
1,135,873 Point Pleasant, NJ, 4.375% BANs, 10/3/1997 1,139,637
10,000,000 Port Authority of New York and New Jersey, (Series 1991-4)
Weekly VRDNs 10,000,000
5,700,000 Trenton, NJ, 4.125% BANs, 12/20/1996 5,702,698
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $143,444,935
Securities that are subject to Alternative Minimum Tax represent 28% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security rated by multiple NRSROs in different rating categories should
be identified as a First or Second Tier security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<C> <C>
90.52% 9.48%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $13,740,000 which represents 9.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($144,528,891) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
BANs -- Bond Anticipation Notes
EDA -- Economic Development Authority
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCFA -- Pollution Control Finance Authority
PLC -- Public Limited Company
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 143,444,935
Cash 235,885
Income receivable 1,210,558
Receivable for shares sold 2,537
Total assets 144,893,915
LIABILITIES:
Payable for shares redeemed $ 44,528
Income distribution payable 276,514
Accrued expenses 43,982
Total liabilities 365,024
Net Assets for 144,528,891 shares outstanding $ 144,528,891
NET ASSET VALUE:
INSTITUTIONAL SHARES:
$115,722,003 / 115,722,003 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$28,806,888 / 28,806,888 shares outstanding $1.00
</TABLE>
<TABLE>
<CAPTION>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,624,312
EXPENSES:
Investment advisory fee $ 501,943
Administrative personnel and services fee 155,108
Custodian fees 23,599
Transfer and dividend disbursing agent fees and expenses 41,701
Directors'/Trustees' fees 2,113
Auditing fees 13,561
Legal fees 9,908
Portfolio accounting fees 53,793
Distribution services fee -- Institutional Service Shares 24,872
Shareholder services fee -- Institutional Shares 251,550
Shareholder services fee -- Institutional Service Shares 62,181
Share registration costs 24,542
Printing and postage 11,780
Insurance premiums 3,625
Taxes 2,543
Miscellaneous 4,078
Total expenses 1,186,897
Waivers --
Waiver of investment advisory fee $ (215,343)
Waiver of distribution services fee -- Institutional Service Shares (24,872)
Waiver of shareholder services fee -- Institutional Shares (201,240)
Waiver of shareholder services fee -- Institutional Service Shares (24,872)
Total waivers (466,327)
Net expenses 720,570
Net investment income $ 3,903,742
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,903,742 $ 3,642,951
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income:
Institutional Shares (3,146,674) (2,752,708)
Institutional Service Shares (757,068) (890,243)
Change in net assets resulting from distributions to
shareholders (3,903,742) (3,642,951)
SHARE TRANSACTIONS --
Proceeds from sale of shares 416,887,554 425,149,193
Net asset value of shares issued to shareholders in payment of
distributions declared 630,451 545,318
Cost of shares redeemed (389,750,630) (408,621,137)
Change in net assets resulting from share transactions 27,767,375 17,073,374
Change in net assets 27,767,375 17,073,374
NET ASSETS:
Beginning of period 116,761,516 99,688,142
End of period $ 144,528,891 $ 116,761,516
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW JERSEY MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New Jersey Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and New Jersey state income tax consistent with stability
of principal and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees (the
"Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Camden County NJ,
Improvement Authority 7/10/1996 $ 4,900,000
Clipper New Jersey
Tax-Exempt Trust 5/1/1996 5,006,316
New Jersey Housing &
Mortgage Financing Authority 7/24/1996 3,845,219
</TABLE>
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
INSTITUTIONAL SHARES SHARES SHARES
<S> <C> <C>
Shares sold 334,848,832 334,240,209
Shares issued to shareholders in payment of distributions declared 218,331 15,613
Shares redeemed (306,289,398) (310,295,248)
Net change resulting from Institutional share transactions 28,777,765 23,960,574
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 82,038,722 90,908,984
Shares issued to shareholders in payment of distributions declared 412,120 529,705
Shares redeemed (83,461,232) (98,325,889)
Net change resulting from Institutional Service share transactions (1,010,390) (6,887,200)
Net change resulting from share transactions 27,767,375 17,073,374
</TABLE>
At October 31, 1996, capital paid-in aggregated $144,528,891.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will reimburse Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Institutional Service Shares. The Plan
provides that the Fund may incur distribution expenses up to 0.10% of the
average daily net assets of the Institutional Service Shares, annually, to
reimburse FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative
service expenses of $78,170 were borne initially by Adviser. The Fund has
agreed to reimburse Adviser for the organizational and/or start-up
administrative expenses at an annual rate of .005% and .01% of average daily
net assets, respectively, until expenses initially borne are fully
reimbursed or the expiration of five years after December 10, 1990 (the date
the Fund became effective), whichever occurs earlier. For the period ended
October 31, 1996, the Fund paid $995 pursuant to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $207,235,000 and $198,435,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 66.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 9.2% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(New Jersey Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
of investments, as of October 31, 1996, the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights (see pages 2 and 15 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
New Jersey Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
New Jersey 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229709
0100802A-SS (12/96)
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of New Jersey Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229709
0100802B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
NEW JERSEY INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Investment Adviser 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Public Accountants 12
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 12
DETERMINING NET ASSET VALUE 12
REDEMPTION IN KIND 13
MASSACHUSETTS PARTNERSHIP LAW 13
THE FUND'S TAX STATUS 13
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 14
Tax-Equivalent Yield 14
Tax-Equivalency Table 14
Total Return 15
Performance Comparisons 15
Economic and Market Information 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 16
Institutional Clients 16
Trust Organizations 16
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 16
APPENDIX 17
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
NEW JERSEY INVESTMENT RISKS
The Fund invests in obligations of New Jersey (the `State'') issuers which
result in the Fund's performance being subject to risks associated with the
overall conditions present within the State. The following information is a
general summary of the State's financial condition and a brief summary of
the prevailing economic conditions. This information is based on official
statements relating to securities that are believed to be reliable but
should not be considered as a complete description of all relevant
information.
The New Jersey economy is diversified with large retail trade and service
sectors and many headquarters of large U.S. corporations. Economic recovery
from the 1989-1992 recession has been slow. Corporate restructurings have
offset strong new business incorporations. Thus, overall job growth has
regained only about 70% of the 1989-1992 losses. In spite of sluggish
economic numbers, New Jersey still boasts very high wealth and income
indicators. New Jersey per capita income ranks second in the nation or
27.8% above the national average.
A new fiscal policy has emerged in New Jersey. In an attempt to spur
economic growth, income tax reductions totaling 30% for most individuals
were phased in over a three-year period. Average growth in budgeted
appropriations for fiscals 1995-1997 was held to just 1%. Given lower tax
revenue levels, expenditure reductions will continue to be key to balancing
the budget. This low level growth can only be accomplished by significantly
curtailing the State's fastest growing Budget items-Medicaid and
corrections. The state faces the additional challenge of managing Federal
welfare reform. In any fiscal scenario, the State's credit picture is
greatly helped by strong cash reserves. In recent years, the State has
maintained cash basis year-end balances exceeding 5.4% of revenues. The
fiscal 1996 ending fund balance was $872.8 million, including a rainy day
fund of $263 million.
The overall credit quality of the State is further demonstrated by its debt
ratings. New Jersey maintains an Aa1 rating from Moody's Investors Service,
Inc. S & P rates the State AA+.
The Fund's concentration in municipal securities issued by the State and
its political subdivisions provides a greater level of risk than a fund
which is diversified across numerous states and municipal entities. The
ability of the State or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the State; and the underlying fiscal
condition of the State, its counties, and its municipalities.
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 directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued New Jersey municipal securities or
temporary investments or enter into repurchase agreements, in
accordance with its investment objective, policies, limitations and
its Declaration of Trust.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for certain restricted securities which meet the criteria for
liquidity as established by the Board of Trustees.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate limited partnerships,
although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which
are secured by real estate or interests in real estate.
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 would be
invested in any one industry or in industrial development bonds or
other securities the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in illiquid securities including certain restricted securities not
determined to be liquid under criteria established by the Trustees and
repurchase agreements providing for settlement in more than seven days
notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Shares of the Fund: COM 11 owned
approximately 35,834,972 shares (30.15%); Corestates Bank, N.A. owned
approximately 15,324,710 shares (12.89%); United National Bank owned
approximately 8,082,486 shares (6.80%); The Bopac Company owned
approximately 7,914,589 shares (6.66%); U.S. Trust Company owned
approximately 25,904,778 shares (21.79%); and Tellson & Co. owned
approximately 14,752,384 shares (12.41%). As of the same date, the
following shareholders of record owned 5% or more of the outstanding
Institutional Service Shares of the Fund: Fiduciary Trust Company
International owned approximately 11,646,000 shares (38.75%); Radnor
Alloys, Inc. owned approximately 2,407,729 shares (8.01%); and Roger and
Edwina Hansen owned approximately 1,818,927 shares (6.05%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996, 1995, and 1994, the adviser earned $501,943,
$431,160, and $390,387, respectively, of which $215,343, $228,371, and
$380,881, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996,
1995, and 1994, the Administrators earned $155,108, $155,000, and $203,429,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Institutional Service Shares, the Fund has 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 adopted a Shareholder Services
Agreement with respect to Institutional Shares and Institutional Service
Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities 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 Plan, the Trustees expect 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 seeking to achieve its investment objectives. By
identifying potential investors whose needs are served by the Fund `s
objectives, and properly servicing these accounts, the Fund may be able 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 year ended October 31, 1996, payments in the amount of
$24,879 were made pursuant to the Plan for Institutional Service Shares,
all of which was waived. In addition, for the fiscal year ended October
31, 1996, the Fund paid shareholder service fees in the amount of $313,731,
of which $226,112 was waived.
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 0.50% 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.
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.
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, 1996, the yield for Institutional Shares and Institutional
Service Shares was 3.04% and 2.94%, 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, 1996, the effective yield for Institutional Shares
and Institutional Service Shares was 3.09% and 2.99%, 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 39.60% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt. For the seven-day period ended October
31, 1996, the tax-equivalent yield for Institutional Shares and
Institutional Service Shares was 5.72% and 5.44%, 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 1996
STATE OF NEW JERSERY
SINGLE RETURN
TAX BRACKET:
FEDERAL
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 16.75% 33.53% 37.37% 42.37% 45.97%
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.80% 2.26% 2.40% 2.60% 2.78%
2.00% 2.40% 3.01% 3.19% 3.47% 3.70%
2.50% 3.00% 3.76% 3.99% 4.34% 4.63%
3.00% 3.60% 4.51% 4.79% 5.21% 5.55%
3.50% 4.20% 5.27% 5.59% 6.07% 6.48%
4.00% 4.80% 6.02% 6.39% 6.94% 7.40%
4.50% 5.41% 6.77% 7.19% 7.81% 8.33%
5.00% 6.01% 7.52% 7.98% 8.68% 9.25%
5.50% 6.61% 8.27% 8.78% 9.54% 10.18%
6.00% 7.21% 9.03% 9.58% 10.41% 11.10%
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.
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.
For the one-year and five-year periods ended October 31, 1996, and for the
period from December 13, 1990 (date of initial public investment) through
October 31, 1996, the average annual total returns were 3.17%, 2.81% and
3.05%, respectively, for Institutional Shares, and were 3.07%, 2.71% and
2.95%, respectively, for Institutional Service Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund.
As of December 31, 1995, Federated Investors managed more than $40.2
billion in assets across approximately 47 money market funds, including 17
government, 10 prime and 20 municipal with assets approximating $20.9
billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
The Cash II Shares of Ohio Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Ohio municipal securities, including securities
of states, territories, and possessions of the United States which are not
issued by or on behalf of Ohio, or its political subdivisions and financing
authorities, but which provide current income exempt from federal regular income
tax and the personal income taxes imposed by the State of Ohio and Ohio
municipalities consistent with stability of principal.
THE 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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CASH II SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Cash II Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
Institutional Service Shares 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
Institutional Shares 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 35
- ------------------------------------------------------
ADDRESSES 36
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH II SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).................. None
Exchange Fee........................................................................ None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................................... 0.21%
12b-1 Fee (after waiver)(2)......................................................... 0.18%
Total Other Expenses................................................................ 0.48%
Shareholder Services Fee.................................................. 0.25%
Total Operating Expenses(3).................................................. 0.87%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The advisor can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate the voluntary waiver at any time
at its sole discretion. The maximum 12b-1 fee is 0.30%.
(3) The Total Operating Expenses would have been 1.18% absent the voluntary
waivers of portions of the management fee and 12b-1 fee.
* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Cash II Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information". Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period......... $9 $28 $48 $107
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH II SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 35.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.02
- ----------------------------------
LESS DISTRIBUTIONS
- ----------------------------------
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ---------------------------------- ----- ----- ----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------- ----- ----- ----- ----- ----- ------
TOTAL RETURN (b) 2.96% 3.30% 2.10% 2.02% 2.90% 2.27%
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------
Expenses 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%*
- ----------------------------------
Net investment income 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%*
- ----------------------------------
Expense waiver/ reimbursement
(c) 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%*
- ----------------------------------
SUPPLEMENTAL DATA
- ----------------------------------
Net assets, end of period (000
omitted) $206,149 $188,234 $156,051 $127,017 $133,877 $94,081
- ----------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established three classes of shares known as Cash II Shares,
Institutional Shares, and Institutional Service Shares. This prospectus relates
only to Cash II Shares of the Fund, which are designed primarily for retail
customers of financial institutions as a convenient means of accumulating an
interest in a professionally managed portfolio investing in short-term municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Ohio taxpayers because it invests in municipal securities of that state.
A minimum initial investment of $25,000 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
- --------------------------------------------------------------------------------
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 State of Ohio
and Ohio municipalities 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 complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 State of Ohio and Ohio municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of 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 Ohio and its political subdivisions and financing authorities,
and obligations of other states, territories, and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from federal regular income tax and the personal
income taxes imposed by the State of
Ohio and Ohio municipalities ("Ohio Municipal Securities"). Examples of Ohio
Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 Ohio Municipal
Securities from financial institutions such as commercial and investment
banks, savings 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 Ohio 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in tax-exempt or taxable securities, all of comparable quality to other
securities in which the Fund invests, 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 institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Ohio Municipal
Securities is subject to the federal alternative minimum tax.
OHIO MUNICIPAL SECURITIES
Ohio Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or
publicly owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Ohio 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 Ohio 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
Ohio 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 Ohio Municipal
Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Ohio 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
Ohio 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 Ohio 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. Due to these considerations, the Fund's
concentration in Ohio Municipal Securities may entail a greater level of risk
than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to one
third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. The Fund will not invest more than 10%
of its net assets in securities subject to restrictions on resale under the
Securities Act of 1933. These investment limitations cannot be changed without
shareholder approval. The following limitation may be changed without
shareholder approval. 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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II Shares of
the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the distributor may be paid a fee by the Fund in an amount computed at
an annual rate of up to .30% of the average daily net asset value of the Fund.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to .25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate as which relates to the average aggregate daily net assets of all
funds advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash II
Shares from the value of Fund assets attributable to Cash II Shares, and
dividing the remainder by the number of Cash II 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 within a
90-day period. Financial institutions may impose different minimum investment
requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares
through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling 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 in order to begin earning dividends that same day. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Ohio Municipal Cash Trust--Cash II Shares; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Ohio Municipal Cash Trust-Cash II Shares.
Please include an account number on the check. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received), and shares begin earning dividends
the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Services Company receives
the redemption request. According to the shareholder's instructions, redemption
proceeds can be sent to the financial institution or to the shareholder by check
or by wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution for
this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Under limited circumstances,
arrangements may be made with the distributor for same-day payment of proceeds,
without that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through ACH
will not be wired until that method of payment has cleared. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares,
and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of December 2, 1996, MAHCO owned 27.17% and Panabco owned 34.33% of the
Institutional Shares of the Fund. As of the same time, Parcol & Co. owned 46.06%
of the Institutional Service Shares of the
Fund and Gradison & Company, Inc. owned 77.16% of the Cash II Shares of the
Fund. These companies may, for certain purposes, be deemed to control the Shares
of the Fund and may be able to affect the outcome of certain matters presented
for a vote of shareholders.
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, within the limits of its investment policies, 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
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be
subject to Ohio individual income taxes to the extent that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
represent (i) interest from obligations of Ohio or its subdivisions which is
exempt from federal income tax; or (ii) interest or dividends from obligations
issued by the United States and its territories or possessions or by any
authority, commission or instrumentality of the United States which are exempt
from state income tax under federal laws. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will be subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent
(i) interest from obligations of Ohio or its subdivisions which is exempt from
federal income tax; or (ii) net interest income from obligations issued by the
United States and its territories or possessions or by any authority, commission
or instrumentality of the United States, which is included in federal taxable
income and which is exempt from state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political subdivisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
law to levy a tax on intangible income).
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers two other classes of shares called Institutional Shares and
Institutional Service Shares. Institutional Shares are sold at net asset value
primarily to financial institutions and are subject to a minimum initial
investment of $25,000 over a 90-day period. Institutional Service Shares are
sold at net asset value primarily to retail customers of financial institutions
and are subject to a minimum initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares and Institutional Service Shares are subject to shareholder
services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FORMERLY, INSTITUTIONAL SHARES)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 35.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.04 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.04) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN (b) 3.27% 3.61% 2.41% 2.33% 3.21% 2.40%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%*
- -----------------------------------------
Net investment income 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%*
- -----------------------------------------
Expense waiver/reimbursement (c) 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $59,721 $72,931 $62,499 $81,748 $74,342 $44,771
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 35.
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1996(a)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income 0.02
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Distributions from net investment income (0.02)
- --------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------- --------
TOTAL RETURN (b) 2.22%
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------
Expenses 0.37%*
- ---------------------------------------------------------------------------
Net investment income 3.38%*
- ---------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.51%*
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Net assets, end of period (000 omitted) $72,680
- ---------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--99.3%
- --------------------------------------------------------------------------------
OHIO--99.3%
----------------------------------------------------------------
$ 600,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting $ 600,000
Nurses)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,535,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, 2,535,000
Inc.)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. 5,875,000
LOC)
----------------------------------------------------------------
1,500,000 Belmont County, OH, Water System Improvement, 3.89% BANs, 1,500,550
12/19/1996
----------------------------------------------------------------
2,550,000 Berea, OH, Various Purpose, 4.10% BANs, 10/23/1997 2,555,969
----------------------------------------------------------------
3,894,000 Bowling Green, OH, 3.80% BANs, 12/5/1996 3,894,244
----------------------------------------------------------------
5,500,000 Brecksville-Broadview Heights CSD, OH, (Series 1996), 3.90% 5,503,910
BANs, 1/17/1997
----------------------------------------------------------------
1,040,000 Canfield, OH Local School District, (Series 1996), 4.50% BANs, 1,043,666
10/2/1997
----------------------------------------------------------------
1,500,000 Cleveland Heights, OH, (Series 1996), 4.10% BANs, 8/28/1997 1,501,775
----------------------------------------------------------------
1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton 1,800,000
Memorial Hospital)/(National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,905,000 Columbiana County, OH, Industrial Development Revenue Bonds 1,905,000
Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown,
N.A. LOC)
----------------------------------------------------------------
800,000 Cuyahoga County, OH Hospital Authority Daily VRDNs (University 800,000
Hospitals Health System, Inc.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo
LOC)
----------------------------------------------------------------
3,600,000 Cuyahoga County, OH Hospital Authority Weekly VRDNs (St. Lukes 3,600,000
Hospital)/(First National Bank of Chicago LOC)
----------------------------------------------------------------
700,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League 700,000
(Cuyahoga County))/(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,650,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, $ 1,650,000
Inc.)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
525,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, 525,000
Inc.)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
690,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway 690,000
West)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,050,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing 1,050,000
Corp.)/(National City Bank, Kentucky LOC)
----------------------------------------------------------------
1,945,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon 1,945,000
Precision Casting Co. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
2,000,000 Dayton, OH Department of Aviation, (Series 1996), 4.50% BANs, 2,003,840
3/25/1997
----------------------------------------------------------------
1,635,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, 1,635,000
Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
3,300,000 Elyria, OH, Various Purpose Improvement Notes, (Series 1996-2), 3,305,694
4.20% BANs, 9/25/1997
----------------------------------------------------------------
7,800,000 Franklin County, OH Hospital Facility Authority Weekly VRDNs 7,800,000
(Riverside United Methodist Hospital)/(National City Bank,
Cleveland, OH LOC)
----------------------------------------------------------------
3,620,000 Franklin County, OH Hospital Facility Authority, (Series 1992) 3,620,000
Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati
LOC)
----------------------------------------------------------------
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC 4,500,000
Bank, Ohio, N.A. LOC)
----------------------------------------------------------------
3,055,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/ 3,055,000
(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
3,490,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon 3,490,000
L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC)
----------------------------------------------------------------
4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series 4,900,000
1996A) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series $ 2,100,000
1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly 2,000,000
Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
----------------------------------------------------------------
2,090,000 Franklin County, OH, Adjustable Rate Demand Economic Development 2,090,000
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (CPM
Investments)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,440,000 Franklin, OH County of, Health Care Facilities Revenue Bonds 1,440,000
(Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third
Bancorp LOC)
----------------------------------------------------------------
1,300,000 Gates Mills Village, OH, Water System Improvement Notes, 3.70% 1,300,496
BANs, 3/26/1997
----------------------------------------------------------------
1,400,000 Green City, OH, Park Improvement General Ltd Tax Notes, 1,401,811
4.35% BANs, 2/7/1997
----------------------------------------------------------------
2,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park 2,000,000
Community)/(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
1,725,000 Hancock County, OH, (Series A), 4.50% BANs, 9/19/1997 1,732,305
----------------------------------------------------------------
2,000,000 Hancock County, OH, 4.27% BANs, 11/22/1996 2,000,637
----------------------------------------------------------------
4,400,000 Hancock County, OH, Various Purpose, 3.81% BANs, 11/22/1996 4,400,731
----------------------------------------------------------------
2,900,000 Highland Heights City, OH, Various Purpose, 3.89% BANs, 2,900,696
12/19/1996
----------------------------------------------------------------
4,000,000 Hilliard, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 4,000,000
(Medex, Inc.)/(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/ 2,000,000
(Rabobank Nederland, Utrecht LOC)
----------------------------------------------------------------
1,970,000 Holmes County, OH, Sanitary Sewer System Improvement Notes, 1,972,604
4.25% BANs, 5/21/1997
----------------------------------------------------------------
1,230,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, 1,230,000
Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,300,000 Kent, OH, Adjustable Rate IDRB (Series 1994) Weekly VRDNs $ 1,300,000
(Raven's Metal Products, Inc. Project)/(First National Bank of
Ohio, Akron LOC)
----------------------------------------------------------------
3,300,000 Lake County, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 3,300,000
(Apsco Properties, LTD.)/(First National Bank of Ohio, Akron
LOC)
----------------------------------------------------------------
2,560,000 Lake County, OH, Hospital Improvement Bonds, 7.875% Bonds 2,628,820
(United States Treasury PRF), 1/1/1997 (@102)
----------------------------------------------------------------
2,815,000 Lake County, OH, Hospital Improvement Bonds, 8.00% Bonds (United 2,891,244
States Treasury PRF), 1/1/1997 (@102)
----------------------------------------------------------------
3,000,000 Lorain County, OH, 4.40% BANs, 9/19/1997 3,010,164
----------------------------------------------------------------
2,885,000 Lorain County, OH, Health Facilities Revenue Bonds (Series 2,885,000
1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third
Bank, Cincinnati LOC)
----------------------------------------------------------------
4,385,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer 4,385,000
Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC)
----------------------------------------------------------------
1,240,000 Lorain Port Authority, OH, Adjustable Rate Demand Port 1,240,000
Development Refunding Revenue Bonds (Series 1996) Weekly VRDNs
(Spitzer Project)/(Bank One, Cleveland, N.A. LOC)
----------------------------------------------------------------
1,200,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. 1,200,000
LOC)
----------------------------------------------------------------
2,000,000 Lucas County, OH IDA, (Series 1991) Weekly VRDNs (Ohio Citizens 2,000,000
Bank)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
1,775,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds 1,775,000
(Series 93) Weekly VRDNs (Lott Industries, Inc.)/(National City
Bank, Cleveland, OH LOC)
----------------------------------------------------------------
270,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs 270,000
(Sunshine Children's Home)/(National City Bank, Cleveland, OH
LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 8,000,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs $ 8,000,000
(Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH
LOC)
----------------------------------------------------------------
2,000,000 Lucas County, OH, Metropolitan Sewer & Water District 2,000,639
Improvement Notes (Series 1995), 4.25% BANs, 11/28/1996
----------------------------------------------------------------
5,300,000 Lucas County, OH, Sewer Improvement, 4.25% BANs, 10/28/1997 5,316,093
----------------------------------------------------------------
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International 5,325,000
Towers, Inc.)/(PNC Bank, N.A. LOC)
----------------------------------------------------------------
6,745,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995) Weekly 6,745,000
VRDNs (Copeland Oaks Project)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
850,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, 850,000
Inc.)/(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
870,000 Mayfield, OH City School District, 4.00% BANs, 4/24/1997 870,798
----------------------------------------------------------------
3,750,000 Medina County, OH, 4.50% BANs, 8/28/1997 3,766,288
----------------------------------------------------------------
7,000,000 Montgomery County, OH Health Facilities Authority, (Series 1995) 7,000,000
Weekly VRDNs (Sisters of Charity Health Care System)/(Toronto-
Dominion Bank LIQ)
----------------------------------------------------------------
1,970,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited 1,970,000
Partnership)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
2,000,000 Muskingum County, OH, County Building Improvement (Series 1996), 2,001,626
3.75% BANs, 3/4/1997
----------------------------------------------------------------
345,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, 345,000
N.A. LOC)
----------------------------------------------------------------
915,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/(National City 915,000
Bank, Cleveland, OH LOC), Optional Tender 2/1/1997
----------------------------------------------------------------
2,035,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 2,035,000
----------------------------------------------------------------
7,235,000 Ohio HFA, 3.80% TOBs (Lincoln Park Associates)/(Comerica Bank, 7,235,000
Detroit, MI LOC), Optional Tender 11/1/1996
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 8,500,000 Ohio HFA, Residential Mortgage Revenue Convertible (1996 Series $ 8,500,000
A- 3), 3.40% TOBs (AIG Funding, Inc. INV), Mandatory Tender
3/3/1997
----------------------------------------------------------------
7,700,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs 7,700,000
(GNMA COL)/(Commerzbank AG, Frankfurt LIQ)
----------------------------------------------------------------
9,510,000 (b) Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs 9,510,000
(GNMA COL)/(Bank of New York, New York LIQ)
----------------------------------------------------------------
8,800,000 (b) Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs 8,800,000
(Bank of New York, New York LIQ)/(GNMA LOC)
----------------------------------------------------------------
1,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 1,001,172
Certificates of Participation, 4.53% RANs, 12/31/1996
----------------------------------------------------------------
3,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 3,010,083
Certificates of Participation, 4.53% RANs, 6/30/1997
----------------------------------------------------------------
3,800,000 Ohio State Air Quality Development Authority, (Series 1998A) 3,800,000
Weekly VRDNs (PPG Industries, Inc.)
----------------------------------------------------------------
4,000,000 Ohio State Air Quality Development Authority, Revenue Bonds 4,000,000
(Series B) Daily VRDNs (Cincinnati Gas and Electric Co.)/ (J.P.
Morgan Delaware, Wilmington LOC)
----------------------------------------------------------------
1,880,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs 1,880,000
(Notre Dame College Project)/(National City Bank, Cleveland, OH
LOC)
----------------------------------------------------------------
1,000,000 Ohio State Water Development Authority Weekly VRDNs (PPG 1,000,000
Industries, Inc.)
----------------------------------------------------------------
2,500,000 Ohio State Water Development Authority, Multimodal Water 2,500,000
Development (Series 1993) Weekly VRDNs (Timken Co.)/(Wachovia
Bank of Georgia N.A., Atlanta LOC)
----------------------------------------------------------------
3,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 3,000,000
1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank
PLC, London LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 3,500,000 Ohio State Water Development Authority, Pollution Control $ 3,500,000
Facilities Revenue Bonds, 3.80% TOBs (Union Bank of Switzerland,
Zurich LOC), Optional Tender 5/1/1997
----------------------------------------------------------------
600,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ (PNC 600,000
Bank, N.A. LOC)
----------------------------------------------------------------
1,320,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, 1,320,000
Inc.)/ (National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic 1,400,000
Corporation)/(National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,250,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/ 1,250,000
(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,000,000 Ottawa County, OH, Regional Water System Notes, 3.98% BANs, 2,001,927
4/9/1997
----------------------------------------------------------------
1,000,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank 1,000,000
One, Cleveland, N.A. LOC), 12/1/1996
----------------------------------------------------------------
135,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/ (Bank 135,000
One, Akron, N.A. LOC)
----------------------------------------------------------------
370,000 Portage County, OH IDA, 4.00% TOBs (Neidlinger)/(KeyBank, N.A. 370,000
LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
4,300,000 Portage County, OH IDA, Adjustable Rate IDRB (Series 1996) 4,300,000
Weekly VRDNs (Barnette Project)/(National City, Northeast LOC)
----------------------------------------------------------------
900,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs 900,000
(Lovejoy Industries)/(Star Bank, N.A., Cincinnati LOC)
----------------------------------------------------------------
5,700,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly 5,700,000
VRDNs(Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A.
LOC)
----------------------------------------------------------------
1,800,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. 1,800,000
Francis Home)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
3,890,000 Shaker Heights, OH, 4.25% BANs, 10/17/1997 3,906,151
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 800,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third $ 800,000
Bank, Cincinnati LOC)
----------------------------------------------------------------
560,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. 560,000
LOC)
----------------------------------------------------------------
2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist 2,000,000
Drill Company)/(NationsBank, South LOC)
----------------------------------------------------------------
1,200,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,200,000
----------------------------------------------------------------
2,300,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilk of 2,300,000
Morris)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,300,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs 1,300,000
(Foundations Systems and Anchors, Inc. Project)/(Bank One,
Akron, N.A. LOC)
----------------------------------------------------------------
5,300,000 Stark County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Gramac 5,300,000
Project, OH)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,340,000 Stow, OH, GO LT Various Purpose Refunding, 4.25% BANs, 1,341,037
12/20/1996
----------------------------------------------------------------
1,285,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro 1,285,000
Machinery Corp., Project)/(Huntington National Bank, Columbus,
OH LOC)
----------------------------------------------------------------
2,700,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited 2,700,000
Partnership)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London 4,500,000
Candies, Inc. )/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
725,000 Summit County, OH IDR, 3.80% TOBs (Bechmer-Boyce 725,000
Project)/(KeyBank, N.A. LOC), Optional Tender 1/15/1997
----------------------------------------------------------------
875,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, 875,000
Akron, N.A. LOC), Optional Tender 2/15/1997
----------------------------------------------------------------
1,075,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial Products, 1,075,000
Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1996
----------------------------------------------------------------
355,000 Summit County, OH IDR, 4.00% TOBs (Keltec Industries)/(Bank One, 355,000
Akron, N.A. LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,140,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool Co.)/ $ 1,140,000
(Bank One, Akron, N.A. LOC), Optional Tender 2/1/1997
----------------------------------------------------------------
760,000 Summit County, OH IDR, 4.00% TOBs (Universal Rack)/(National 760,000
City Bank, Cleveland, OH LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
1,700,000 Summit County, OH IDR, Adjustable Rate IDRB (Series 1996) Weekly 1,700,000
VRDNs (Fomo Products, Inc.)/(First National Bank of Ohio, Akron
LOC)
----------------------------------------------------------------
920,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin 920,000
Printing Co., Inc.)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry 2,890,000
London Candies, Inc.)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
1,000,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech 1,000,000
Project (OH))/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,485,000 Summit County, OH IDR, Industrial Development Bonds (Series 1,485,000
1996) Weekly VRDNs (Creative Screen Print Project)/(National
City, Northeast LOC)
----------------------------------------------------------------
1,450,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs 1,450,000
(Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa 1,000,000
Corp.)/(Bayerische Vereinsbank AG, Munich LOC)
----------------------------------------------------------------
2,500,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald 2,500,000
Steel Corp.)/(PNC Bank, N.A. LOC)
----------------------------------------------------------------
1,330,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) 1,330,000
Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A.
LOC)
----------------------------------------------------------------
1,750,000 Trumbull County, OH, Correctional Facilities GO LT Notes, 1996 1,751,995
Renewal, 4.07% BANs, 4/10/1997
----------------------------------------------------------------
1,200,000 Tuscarawas County, OH, Adjustable Rate IDRB (Series 1995) Weekly 1,200,000
VRDNs (Primary Packaging, Inc.)/(First National Bank of Ohio,
Akron LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 3,254,624 Union Local School District, OH, Classroom Facilities Voted UT $ 3,263,171
GO, 4.45% BANs, 4/15/1997
----------------------------------------------------------------
3,800,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/ 3,800,000
(KeyBank, N.A. LOC)
----------------------------------------------------------------
2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB (Series 1996) 2,650,000
Weekly VRDNs (Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,120,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly 1,120,000
VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank,
N.A., Cincinnati LOC)
----------------------------------------------------------------
1,210,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly 1,210,000
VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank,
N.A., Cincinnati LOC)
----------------------------------------------------------------
1,400,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/ 1,400,000
(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/ 2,200,000
(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
4,300,000 Youngstown, OH, Adjustable Rate Demand IDRB (Series 1996A) 4,300,000
Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine
Midland Bank N.A., Buffalo, NY LOC)
------------
----------------------------------------------------------------
$336,085,136
TOTAL INVESTMENTS (AT AMORTIZED COST)(c)
------------
----------------------------------------------------------------
</TABLE>
At October 31, 1996, 49.9% of the total investments at market value were subject
to alternative minimum tax.
(a) The Trust may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
----------- ------------
<S> <C>
98.1% 1.9%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $18,310,000 which represents 5.41% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($338,549,831) at October 31, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
BANs --Bond Anticipation Notes
COL --Collateralized
CSD --Central School District
EDRB --Economic Development Revenue Bonds
GNMA --Government National Mortgage Association
GO --General Obligation
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDR --Industrial Development Revenue
IDRB --Industrial Development Revenue Bond
INV --Investment Agreement
LIQ --Liquidity Agreement
LOC --Letter of Credit
LT --Limited Tax
LTD --Limited
PCR --Pollution Control Revenue
PLC --Public Limited Company
PRF --Prerefunded
RANs --Revenue Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $336,085,136
- -------------------------------------------------------------------------------
Cash 236,765
- -------------------------------------------------------------------------------
Income receivable 2,777,561
- -------------------------------------------------------------------------------
Receivable for shares sold 11,287
- ------------------------------------------------------------------------------- ------------
Total assets 339,110,749
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed 45,440
- --------------------------------------------------------------------
Income distribution payable 315,778
- --------------------------------------------------------------------
Accrued expenses 199,700
- -------------------------------------------------------------------- --------
Total liabilities 560,918
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 338,549,831 shares outstanding $338,549,831
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------
$59,721,012 / 59,721,012 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
CASH II SHARES:
- -------------------------------------------------------------------------------
$206,148,774 / 206,148,774 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------
$72,680,045 / 72,680,045 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $11,230,260
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $1,183,374
- ---------------------------------------------------------------------
Administrative personnel and services fee 223,680
- ---------------------------------------------------------------------
Custodian fees 45,066
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 216,497
- ---------------------------------------------------------------------
Directors'/Trustees' fees 4,758
- ---------------------------------------------------------------------
Auditing fees 13,561
- ---------------------------------------------------------------------
Legal fees 5,183
- ---------------------------------------------------------------------
Portfolio accounting fees 93,684
- ---------------------------------------------------------------------
Distribution services fee -- Cash II Shares 611,752
- ---------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 181,201
- ---------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 509,793
- ---------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 48,568
- ---------------------------------------------------------------------
Share registration costs 57,328
- ---------------------------------------------------------------------
Printing and postage 19,665
- ---------------------------------------------------------------------
Insurance premiums 5,429
- --------------------------------------------------------------------- ----------
Total expenses 3,219,539
- ---------------------------------------------------------------------
Waivers
- ---------------------------------------------------------------------
Waiver of investment advisory fee $(570,677)
- ---------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (236,326)
- ---------------------------------------------------------
Waiver of shareholder services fee -- Institutional
Service Shares (91,783)
- ---------------------------------------------------------
Waiver of shareholder services fee -- Institutional
Shares (48,568)
- --------------------------------------------------------- ---------
Total waivers (947,354)
- --------------------------------------------------------------------- ----------
Net expenses 2,272,185
- ----------------------------------------------------------------------------------- -----------
Net investment income $ 8,958,075
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 8,958,075 $ 8,010,653
- ------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------
Institutional Service Shares (2,339,083) (2,660,655)
- -------------------------------------------------------------
Cash II Shares (5,962,329) (5,349,998)
- -------------------------------------------------------------
Institutional Shares (656,663) --
- ------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions
to shareholders (8,958,075) (8,010,653)
- ------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 1,408,349,215 1,275,288,208
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 6,083,711 5,470,332
- -------------------------------------------------------------
Cost of shares redeemed (1,337,048,550) (1,238,142,557)
- ------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 77,384,376 42,615,983
- ------------------------------------------------------------- --------------- ---------------
Change in net assets 77,384,376 42,615,983
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 261,165,455 218,549,472
- ------------------------------------------------------------- --------------- ---------------
End of period $ 338,549,831 $ 261,165,455
- ------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Ohio Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares (effective March 5, 1996,
the Fund Institutional Shares changed to Institutional Service Shares), Cash II
Shares and Institutional Shares (effective March 5, 1996, the Fund added
Institutional Shares).
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Fund
will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
<S> <C> <C>
Ohio HFA, Trust Receipts (Series 1996 FR/RI-6),
(GNMA COL) 9/4/96 $9,510,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-5),
(GNMA LOC) 6/6/96 8,800,000
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SERVICE SHARES 1996 1995
- ---------------------------- ------------ ------------
<S> <C> <C>
Shares sold 440,264,015 571,719,826
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 226,623 277,721
- -----------------------------------------------------------------
Shares redeemed (453,700,715) (561,565,338)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Service share
transactions (13,210,077) 10,432,209
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
CASH II SHARES 1996 1995
- -------------- ------------ ------------
<S> <C> <C>
Shares sold 681,930,901 703,568,382
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 5,797,497 5,192,611
- -----------------------------------------------------------------
Shares redeemed (669,813,991) (676,577,219)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Cash II share transactions 17,914,407 32,183,774
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SHARES 1996* 1995
- -------------------- ------------ ------------
<S> <C> <C>
Shares sold 286,154,299 --
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 59,591 --
- -----------------------------------------------------------------
Shares redeemed (213,533,844) --
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional share transactions 72,680,046 --
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 77,384,376 42,615,983
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
* Reflects operations for the period from March 5, 1996 (date of initial public
investment) to October 31, 1996
At October 31, 1996, capital paid-in aggregated $338,549,831.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp.("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Cash II Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.30% of the average daily net assets of the Cash II
Shares, annually, to compensate
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FSC. The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $527,800,000 and $491,520,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 71.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.3% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Ohio Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1996, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2, 15 and 16 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as
of October 31, 1996, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Ohio Municipal Cash Trust
Cash II 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
- ---------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ---------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OHIO MUNICIPAL
CASH TRUST
CASH II SHARES
PROSPECTUS
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
Prospectus dated December 31, 1996
[LOGO]
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229840
1030105A-CII (12/96)
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Ohio Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a portfolio of Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
Fund invests primarily in short-term Ohio municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Ohio, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal.
THE 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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH II SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34
- ------------------------------------------------------
ADDRESSES 35
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as applicable)...................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.14%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.23%
Shareholder Services Fee (after waiver)(2)................................. 0.00%
Total Operating Expenses(3).................................................... 0.37%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this anticipated
voluntary waiver at any time at its sole discretion. The maximum management fee
is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.88% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information". Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period............. $4 $12 $21 $ 47
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1996(a)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income 0.02
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Distributions from net investment income (0.02)
- --------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------- --------
TOTAL RETURN (b) 2.22%
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------
Expenses 0.37%*
- ---------------------------------------------------------------------------
Net investment income 3.38%*
- ---------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.51%*
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Net assets, end of period (000 omitted) $72,680
- ---------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established three classes of shares known as Institutional Shares,
Cash II 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 portfolio investing in
short-term municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Ohio taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 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
- --------------------------------------------------------------------------------
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 State of Ohio
and Ohio municipalities 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 complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 State of Ohio and Ohio municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of 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 Ohio and its political subdivisions and financing authorities,
and obligations of other states, territories, and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal
Securities"). Examples of Ohio Municipal Securities include, but are not limited
to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 Ohio Municipal
Securities from financial institutions such as commercial and investment
banks, savings 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 Ohio 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in tax-exempt or taxable securities, all of comparable quality to other
securities in which the Fund invests, 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 institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Ohio Municipal
Securities is subject to the federal alternative minimum tax.
OHIO MUNICIPAL SECURITIES
Ohio Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or
publicly owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Ohio 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 Ohio 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
Ohio 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 Ohio Municipal
Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Ohio 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
Ohio 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 Ohio 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. Due to these considerations, the Fund's
concentration in Ohio Municipal Securities may entail a greater level of risk
than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. The Fund will not invest more than 10%
of its net assets in securities subject to restrictions on resale under the
Securities Act of 1933. These investment limitations cannot be changed without
shareholder approval. The following limitation may be changed without
shareholder approval. 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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
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 the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate as which relates to the average aggregate daily net assets of all
funds advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash
Trust--Institutional Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Ohio Municipal Cash Trust--Institutional
Shares. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests on
holidays when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at the
telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of December 2, 1996, MAHCO owned 27.17% and Panabco owned 34.33% of the
Institutional Shares of the Fund. As of the same time, Parcol & Co. owned 46.06%
of the Institutional Service Shares of the Fund and Gradison & Company, Inc.
owned 77.16% of the Cash II Shares of the Fund. These companies may, for certain
purposes, be deemed to control the Shares of the Fund and may be able to affect
the outcome of certain matters presented for a vote of shareholders.
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, within the limits of its investment policies, 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
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be
subject to Ohio individual income taxes to the extent that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
represent (i) interest from obligations of Ohio or its subdivisions which is
exempt from federal income tax; or (ii) interest or dividends from obligations
issued by the United States and its territories or possessions or by any
authority, commission or instrumentality of the United States which are exempt
from state income tax under federal laws. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will be subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent (i) interest from obligations of
Ohio or its subdivisions which is exempt from federal income tax; or (ii) net
interest income from obligations issued by the United States and its territories
or possessions or by any authority, commission or instrumentality of the United
States, which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political subdivisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
law to levy a tax on intangible income).
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers two other classes of shares called Cash II Shares and
Institutional Service Shares. Cash II Shares and Institutional Service Shares
are sold at net asset value primarily to retail customers of financial
institutions and are subject to a minimum initial investment of $25,000 over a
90-day period.
All classes are subject to certain of the same expenses.
Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also
are subject to shareholder services fees. Institutional Service Shares are
subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FORMERLY, INSTITUTIONAL SHARES)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.04 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.04) (0.02) (0.02) (0.03) (0.02 )
- ----------------------------------------- ------ ------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ ------ -------
TOTAL RETURN (b) 3.27% 3.61% 2.41% 2.33% 3.21% 2.40 %
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.57% 0.57% 0.55% 0.48% 0.46% 0.35 %*
- -----------------------------------------
Net investment income 3.23% 3.56% 2.36% 2.30% 3.10% 4.46 %*
- -----------------------------------------
Expense waiver/reimbursement (c) 0.31% 0.29% 0.07% 0.19% 0.25% 0.32 %*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $59,721 $72,931 $62,499 $81,748 $74,342 $44,771
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH II SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN (b) 2.96% 3.30% 2.10% 2.02% 2.90% 2.27%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%*
- -----------------------------------------
Net investment income 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%*
- -----------------------------------------
Expense waiver/reimbursement (c) 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $206,149 $188,234 $156,051 $127,017 $133,877 $94,081
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--99.3%
- --------------------------------------------------------------------------------
OHIO--99.3%
----------------------------------------------------------------
$ 600,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting $ 600,000
Nurses)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,535,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, 2,535,000
Inc.)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. 5,875,000
LOC)
----------------------------------------------------------------
1,500,000 Belmont County, OH, Water System Improvement, 3.89% BANs, 1,500,550
12/19/1996
----------------------------------------------------------------
2,550,000 Berea, OH, Various Purpose, 4.10% BANs, 10/23/1997 2,555,969
----------------------------------------------------------------
3,894,000 Bowling Green, OH, 3.80% BANs, 12/5/1996 3,894,244
----------------------------------------------------------------
5,500,000 Brecksville-Broadview Heights CSD, OH, (Series 1996), 3.90% 5,503,910
BANs, 1/17/1997
----------------------------------------------------------------
1,040,000 Canfield, OH Local School District, (Series 1996), 4.50% BANs, 1,043,666
10/2/1997
----------------------------------------------------------------
1,500,000 Cleveland Heights, OH, (Series 1996), 4.10% BANs, 8/28/1997 1,501,775
----------------------------------------------------------------
1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton 1,800,000
Memorial Hospital)/(National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,905,000 Columbiana County, OH, Industrial Development Revenue Bonds 1,905,000
Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown,
N.A. LOC)
----------------------------------------------------------------
800,000 Cuyahoga County, OH Hospital Authority Daily VRDNs (University 800,000
Hospitals Health System, Inc.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo
LOC)
----------------------------------------------------------------
3,600,000 Cuyahoga County, OH Hospital Authority Weekly VRDNs (St. Lukes 3,600,000
Hospital)/(First National Bank of Chicago LOC)
----------------------------------------------------------------
700,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League 700,000
(Cuyahoga County))/(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,650,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, $ 1,650,000
Inc.)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
525,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, 525,000
Inc.)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
690,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway 690,000
West)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,050,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing 1,050,000
Corp.)/(National City Bank, Kentucky LOC)
----------------------------------------------------------------
1,945,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon 1,945,000
Precision Casting Co. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
2,000,000 Dayton, OH Department of Aviation, (Series 1996), 4.50% BANs, 2,003,840
3/25/1997
----------------------------------------------------------------
1,635,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, 1,635,000
Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
3,300,000 Elyria, OH, Various Purpose Improvement Notes, (Series 1996-2), 3,305,694
4.20% BANs, 9/25/1997
----------------------------------------------------------------
7,800,000 Franklin County, OH Hospital Facility Authority Weekly VRDNs 7,800,000
(Riverside United Methodist Hospital)/(National City Bank,
Cleveland, OH LOC)
----------------------------------------------------------------
3,620,000 Franklin County, OH Hospital Facility Authority, (Series 1992) 3,620,000
Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati
LOC)
----------------------------------------------------------------
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC 4,500,000
Bank, Ohio, N.A. LOC)
----------------------------------------------------------------
3,055,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/ 3,055,000
(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
3,490,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon 3,490,000
L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC)
----------------------------------------------------------------
4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series 4,900,000
1996A) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series $ 2,100,000
1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly 2,000,000
Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
----------------------------------------------------------------
2,090,000 Franklin County, OH, Adjustable Rate Demand Economic Development 2,090,000
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (CPM
Investments)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,440,000 Franklin, OH County of, Health Care Facilities Revenue Bonds 1,440,000
(Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third
Bancorp LOC)
----------------------------------------------------------------
1,300,000 Gates Mills Village, OH, Water System Improvement Notes, 3.70% 1,300,496
BANs, 3/26/1997
----------------------------------------------------------------
1,400,000 Green City, OH, Park Improvement General Ltd Tax Notes, 1,401,811
4.35% BANs, 2/7/1997
----------------------------------------------------------------
2,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park 2,000,000
Community)/(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
1,725,000 Hancock County, OH, (Series A), 4.50% BANs, 9/19/1997 1,732,305
----------------------------------------------------------------
2,000,000 Hancock County, OH, 4.27% BANs, 11/22/1996 2,000,637
----------------------------------------------------------------
4,400,000 Hancock County, OH, Various Purpose, 3.81% BANs, 11/22/1996 4,400,731
----------------------------------------------------------------
2,900,000 Highland Heights City, OH, Various Purpose, 3.89% BANs, 2,900,696
12/19/1996
----------------------------------------------------------------
4,000,000 Hilliard, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 4,000,000
(Medex, Inc.)/(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/ 2,000,000
(Rabobank Nederland, Utrecht LOC)
----------------------------------------------------------------
1,970,000 Holmes County, OH, Sanitary Sewer System Improvement Notes, 1,972,604
4.25% BANs, 5/21/1997
----------------------------------------------------------------
1,230,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, 1,230,000
Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,300,000 Kent, OH, Adjustable Rate IDRB (Series 1994) Weekly VRDNs $ 1,300,000
(Raven's Metal Products, Inc. Project)/(First National Bank of
Ohio, Akron LOC)
----------------------------------------------------------------
3,300,000 Lake County, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 3,300,000
(Apsco Properties, LTD.)/(First National Bank of Ohio, Akron
LOC)
----------------------------------------------------------------
2,560,000 Lake County, OH, Hospital Improvement Bonds, 7.875% Bonds 2,628,820
(United States Treasury PRF), 1/1/1997 (@102)
----------------------------------------------------------------
2,815,000 Lake County, OH, Hospital Improvement Bonds, 8.00% Bonds (United 2,891,244
States Treasury PRF), 1/1/1997 (@102)
----------------------------------------------------------------
3,000,000 Lorain County, OH, 4.40% BANs, 9/19/1997 3,010,164
----------------------------------------------------------------
2,885,000 Lorain County, OH, Health Facilities Revenue Bonds (Series 2,885,000
1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third
Bank, Cincinnati LOC)
----------------------------------------------------------------
4,385,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer 4,385,000
Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC)
----------------------------------------------------------------
1,240,000 Lorain Port Authority, OH, Adjustable Rate Demand Port 1,240,000
Development Refunding Revenue Bonds (Series 1996) Weekly VRDNs
(Spitzer Project)/(Bank One, Cleveland, N.A. LOC)
----------------------------------------------------------------
1,200,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. 1,200,000
LOC)
----------------------------------------------------------------
2,000,000 Lucas County, OH IDA, (Series 1991) Weekly VRDNs (Ohio Citizens 2,000,000
Bank)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
1,775,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds 1,775,000
(Series 93) Weekly VRDNs (Lott Industries, Inc.)/(National City
Bank, Cleveland, OH LOC)
----------------------------------------------------------------
270,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs 270,000
(Sunshine Children's Home)/(National City Bank, Cleveland, OH
LOC)
----------------------------------------------------------------
8,000,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs 8,000,000
(Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH
LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,000,000 Lucas County, OH, Metropolitan Sewer & Water District $ 2,000,639
Improvement Notes (Series 1995), 4.25% BANs, 11/28/1996
----------------------------------------------------------------
5,300,000 Lucas County, OH, Sewer Improvement, 4.25% BANs, 10/28/1997 5,316,093
----------------------------------------------------------------
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International 5,325,000
Towers, Inc.)/(PNC Bank, N.A. LOC)
----------------------------------------------------------------
6,745,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995) Weekly 6,745,000
VRDNs (Copeland Oaks Project)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
850,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, 850,000
Inc.)/(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
870,000 Mayfield, OH City School District, 4.00% BANs, 4/24/1997 870,798
----------------------------------------------------------------
3,750,000 Medina County, OH, 4.50% BANs, 8/28/1997 3,766,288
----------------------------------------------------------------
7,000,000 Montgomery County, OH Health Facilities Authority, (Series 1995) 7,000,000
Weekly VRDNs (Sisters of Charity Health Care System)/(Toronto-
Dominion Bank LIQ)
----------------------------------------------------------------
1,970,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited 1,970,000
Partnership)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
2,000,000 Muskingum County, OH, County Building Improvement (Series 1996), 2,001,626
3.75% BANs, 3/4/1997
----------------------------------------------------------------
345,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, 345,000
N.A. LOC)
----------------------------------------------------------------
915,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/(National City 915,000
Bank, Cleveland, OH LOC), Optional Tender 2/1/1997
----------------------------------------------------------------
2,035,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 2,035,000
----------------------------------------------------------------
7,235,000 Ohio HFA, 3.80% TOBs (Lincoln Park Associates)/(Comerica Bank, 7,235,000
Detroit, MI LOC), Optional Tender 11/1/1996
----------------------------------------------------------------
8,500,000 Ohio HFA, Residential Mortgage Revenue Convertible (1996 Series 8,500,000
A-3), 3.40% TOBs (AIG Funding, Inc. INV), Mandatory Tender
3/3/1997
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 7,700,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs $ 7,700,000
(GNMA COL)/(Commerzbank AG, Frankfurt LIQ)
----------------------------------------------------------------
9,510,000 (b) Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs 9,510,000
(GNMA COL)/(Bank of New York, New York LIQ)
----------------------------------------------------------------
8,800,000 (b) Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs 8,800,000
(Bank of New York, New York LIQ)/(GNMA LOC)
----------------------------------------------------------------
1,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 1,001,172
Certificates of Participation, 4.53% RANs, 12/31/1996
----------------------------------------------------------------
3,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 3,010,083
Certificates of Participation, 4.53% RANs, 6/30/1997
----------------------------------------------------------------
3,800,000 Ohio State Air Quality Development Authority, (Series 1998A) 3,800,000
Weekly VRDNs (PPG Industries, Inc.)
----------------------------------------------------------------
4,000,000 Ohio State Air Quality Development Authority, Revenue Bonds 4,000,000
(Series B) Daily VRDNs (Cincinnati Gas and Electric Co.)/ (J.P.
Morgan Delaware, Wilmington LOC)
----------------------------------------------------------------
1,880,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs 1,880,000
(Notre Dame College Project)/(National City Bank, Cleveland, OH
LOC)
----------------------------------------------------------------
1,000,000 Ohio State Water Development Authority Weekly VRDNs (PPG 1,000,000
Industries, Inc.)
----------------------------------------------------------------
2,500,000 Ohio State Water Development Authority, Multimodal Water 2,500,000
Development (Series 1993) Weekly VRDNs (Timken Co.)/(Wachovia
Bank of Georgia N.A., Atlanta LOC)
----------------------------------------------------------------
3,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 3,000,000
1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank
PLC, London LOC)
----------------------------------------------------------------
3,500,000 Ohio State Water Development Authority, Pollution Control 3,500,000
Facilities Revenue Bonds, 3.80% TOBs (Union Bank of Switzerland,
Zurich LOC), Optional Tender 5/1/1997
----------------------------------------------------------------
600,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ (PNC 600,000
Bank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,320,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, $ 1,320,000
Inc.)/ (National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic 1,400,000
Corporation)/(National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,250,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/ 1,250,000
(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,000,000 Ottawa County, OH, Regional Water System Notes, 3.98% BANs, 2,001,927
4/9/1997
----------------------------------------------------------------
1,000,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank 1,000,000
One, Cleveland, N.A. LOC), 12/1/1996
----------------------------------------------------------------
135,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/ (Bank 135,000
One, Akron, N.A. LOC)
----------------------------------------------------------------
370,000 Portage County, OH IDA, 4.00% TOBs (Neidlinger)/(KeyBank, N.A. 370,000
LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
4,300,000 Portage County, OH IDA, Adjustable Rate IDRB (Series 1996) 4,300,000
Weekly VRDNs (Barnette Project)/(National City, Northeast LOC)
----------------------------------------------------------------
900,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs 900,000
(Lovejoy Industries)/(Star Bank, N.A., Cincinnati LOC)
----------------------------------------------------------------
5,700,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly 5,700,000
VRDNs(Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A.
LOC)
----------------------------------------------------------------
1,800,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. 1,800,000
Francis Home)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
3,890,000 Shaker Heights, OH, 4.25% BANs, 10/17/1997 3,906,151
----------------------------------------------------------------
800,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third 800,000
Bank, Cincinnati LOC)
----------------------------------------------------------------
560,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. 560,000
LOC)
----------------------------------------------------------------
2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist 2,000,000
Drill Company)/(NationsBank, South LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,200,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) $ 1,200,000
----------------------------------------------------------------
2,300,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilk of 2,300,000
Morris)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,300,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs 1,300,000
(Foundations Systems and Anchors, Inc. Project)/(Bank One,
Akron, N.A. LOC)
----------------------------------------------------------------
5,300,000 Stark County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Gramac 5,300,000
Project, OH)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,340,000 Stow, OH, GO LT Various Purpose Refunding, 4.25% BANs, 1,341,037
12/20/1996
----------------------------------------------------------------
1,285,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro 1,285,000
Machinery Corp., Project)/(Huntington National Bank, Columbus,
OH LOC)
----------------------------------------------------------------
2,700,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited 2,700,000
Partnership)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London 4,500,000
Candies, Inc. )/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
725,000 Summit County, OH IDR, 3.80% TOBs (Bechmer-Boyce 725,000
Project)/(KeyBank, N.A. LOC), Optional Tender 1/15/1997
----------------------------------------------------------------
875,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, 875,000
Akron, N.A. LOC), Optional Tender 2/15/1997
----------------------------------------------------------------
1,075,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial Products, 1,075,000
Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1996
----------------------------------------------------------------
355,000 Summit County, OH IDR, 4.00% TOBs (Keltec Industries)/(Bank One, 355,000
Akron, N.A. LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
1,140,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool Co.)/ 1,140,000
(Bank One, Akron, N.A. LOC), Optional Tender 2/1/1997
----------------------------------------------------------------
760,000 Summit County, OH IDR, 4.00% TOBs (Universal Rack)/(National 760,000
City Bank, Cleveland, OH LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,700,000 Summit County, OH IDR, Adjustable Rate IDRB (Series 1996) Weekly $ 1,700,000
VRDNs (Fomo Products, Inc.)/(First National Bank of Ohio, Akron
LOC)
----------------------------------------------------------------
920,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin 920,000
Printing Co., Inc.)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry 2,890,000
London Candies, Inc.)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
1,000,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech 1,000,000
Project (OH))/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,485,000 Summit County, OH IDR, Industrial Development Bonds (Series 1,485,000
1996) Weekly VRDNs (Creative Screen Print Project)/(National
City, Northeast LOC)
----------------------------------------------------------------
1,450,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs 1,450,000
(Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa 1,000,000
Corp.)/(Bayerische Vereinsbank AG, Munich LOC)
----------------------------------------------------------------
2,500,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald 2,500,000
Steel Corp.)/(PNC Bank, N.A. LOC)
----------------------------------------------------------------
1,330,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) 1,330,000
Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A.
LOC)
----------------------------------------------------------------
1,750,000 Trumbull County, OH, Correctional Facilities GO LT Notes, 1996 1,751,995
Renewal, 4.07% BANs, 4/10/1997
----------------------------------------------------------------
1,200,000 Tuscarawas County, OH, Adjustable Rate IDRB (Series 1995) Weekly 1,200,000
VRDNs (Primary Packaging, Inc.)/(First National Bank of Ohio,
Akron LOC)
----------------------------------------------------------------
3,254,624 Union Local School District, OH, Classroom Facilities Voted UT 3,263,171
GO, 4.45% BANs, 4/15/1997
----------------------------------------------------------------
3,800,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/ 3,800,000
(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB (Series 1996)
Weekly VRDNs (Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC) $ 2,650,000
----------------------------------------------------------------
1,120,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly
VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank,
N.A., Cincinnati LOC) 1,120,000
----------------------------------------------------------------
1,210,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly
VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank,
N.A., Cincinnati LOC) 1,210,000
----------------------------------------------------------------
1,400,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/
(National City Bank, Cleveland, OH LOC) 1,400,000
----------------------------------------------------------------
2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/
(Huntington National Bank, Columbus, OH LOC) 2,200,000
----------------------------------------------------------------
4,300,000 Youngstown, OH, Adjustable Rate Demand IDRB (Series 1996A)
Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine
Midland Bank N.A., Buffalo, NY LOC) 4,300,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $336,085,136
---------------------------------------------------------------- ------------
</TABLE>
At October 31, 1996, 49.9% of the total investments at market value were subject
to alternative minimum tax.
(a) The Trust may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
----------- ------------
<S> <C>
98.1% 1.9%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $18,310,000 which represents 5.41% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($338,549,831) at October 31, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
BANs --Bond Anticipation Notes
COL --Collateralized
CSD --Central School District
EDRB --Economic Development Revenue Bonds
GNMA --Government National Mortgage Association
GO --General Obligation
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDR --Industrial Development Revenue
IDRB --Industrial Development Revenue Bond
INV --Investment Agreement
LIQ --Liquidity Agreement
LOC --Letter of Credit
LT --Limited Tax
LTD --Limited
PCR --Pollution Control Revenue
PLC --Public Limited Company
PRF --Prerefunded
RANs --Revenue Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $336,085,136
- -------------------------------------------------------------------------------
Cash 236,765
- -------------------------------------------------------------------------------
Income receivable 2,777,561
- -------------------------------------------------------------------------------
Receivable for shares sold 11,287
- ------------------------------------------------------------------------------- ------------
Total assets 339,110,749
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed 45,440
- --------------------------------------------------------------------
Income distribution payable 315,778
- --------------------------------------------------------------------
Accrued expenses 199,700
- -------------------------------------------------------------------- --------
Total liabilities 560,918
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 338,549,831 shares outstanding $338,549,831
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------
$59,721,012 / 59,721,012 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
CASH II SHARES:
- -------------------------------------------------------------------------------
$206,148,774 / 206,148,774 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------
$72,680,045 / 72,680,045 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $11,230,260
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $1,183,374
- ---------------------------------------------------------------------
Administrative personnel and services fee 223,680
- ---------------------------------------------------------------------
Custodian fees 45,066
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 216,497
- ---------------------------------------------------------------------
Directors'/Trustees' fees 4,758
- ---------------------------------------------------------------------
Auditing fees 13,561
- ---------------------------------------------------------------------
Legal fees 5,183
- ---------------------------------------------------------------------
Portfolio accounting fees 93,684
- ---------------------------------------------------------------------
Distribution services fee--Cash II Shares 611,752
- ---------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 181,201
- ---------------------------------------------------------------------
Shareholder services fee--Cash II Shares 509,793
- ---------------------------------------------------------------------
Shareholder services fee--Institutional Shares 48,568
- ---------------------------------------------------------------------
Share registration costs 57,328
- ---------------------------------------------------------------------
Printing and postage 19,665
- ---------------------------------------------------------------------
Insurance premiums 5,429
- --------------------------------------------------------------------- ----------
Total expenses 3,219,539
- ---------------------------------------------------------------------
Waivers
- ---------------------------------------------------------------------
Waiver of investment advisory fee $(570,677)
- ---------------------------------------------------------
Waiver of distribution services fee--Cash II Shares (236,326)
- ---------------------------------------------------------
Waiver of shareholder services fee--Institutional
Service Shares (91,783)
- ---------------------------------------------------------
Waiver of shareholder services fee--Institutional
Shares (48,568)
- --------------------------------------------------------- ---------
Total waivers (947,354)
- --------------------------------------------------------------------- ----------
Net expenses 2,272,185
- ----------------------------------------------------------------------------------- -----------
Net investment income $ 8,958,075
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 8,958,075 $ 8,010,653
- ------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------
Institutional Service Shares (2,339,083) (2,660,655)
- -------------------------------------------------------------
Cash II Shares (5,962,329) (5,349,998)
- -------------------------------------------------------------
Institutional Shares (656,663) --
- ------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions
to shareholders (8,958,075) (8,010,653)
- ------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 1,408,349,215 1,275,288,208
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 6,083,711 5,470,332
- -------------------------------------------------------------
Cost of shares redeemed (1,337,048,550) (1,238,142,557)
- ------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 77,384,376 42,615,983
- ------------------------------------------------------------- --------------- ---------------
Change in net assets 77,384,376 42,615,983
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 261,165,455 218,549,472
- ------------------------------------------------------------- --------------- ---------------
End of period $ 338,549,831 $ 261,165,455
- ------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Ohio Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares (effective March 5, 1996,
the Fund's Institutional Shares changed to Institutional Service Shares), Cash
II Shares and Institutional Shares (effective March 5, 1996, the Fund added
Institutional Shares).
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Fund
will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
<S> <C> <C>
Ohio HFA, Trust Receipts (Series 1996 FR/RI-6),
(GNMA COL) 9/4/96 $9,510,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-5),
(GNMA LOC) 6/6/96 8,800,000
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SERVICE SHARES 1996 1995
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 440,264,015 571,719,826
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 226,623 277,721
- -----------------------------------------------------------------
Shares redeemed (453,700,715) (561,565,338)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Service share
transactions (13,210,077) 10,432,209
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
CASH II SHARES 1996 1995
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 681,930,901 703,568,382
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 5,797,497 5,192,611
- -----------------------------------------------------------------
Shares redeemed (669,813,991) (676,577,219)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Cash II share transactions 17,914,407 32,183,774
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SHARES 1996* 1995
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 286,154,299 --
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 59,591 --
- -----------------------------------------------------------------
Shares redeemed (213,533,844) --
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional share transactions 72,680,046 --
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 77,384,376 42,615,983
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
* Reflects operations for the period from March 5, 1996 (date of initial public
investment) to October 31, 1996
At October 31, 1996, capital paid-in aggregated $338,549,831.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp.("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Cash II Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.30% of the average daily net assets of the Cash II
Shares, annually, to compensate
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FSC. The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $527,800,000 and $491,520,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 71.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.3% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Ohio Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1996, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2, 14 and 15 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as
of October 31, 1996, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Ohio 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OHIO MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
Prospectus dated December 31, 1996
[LOGO] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[LOGO]
Cusip 314229659
G00211-01-IS (12/96)
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
(FORMERLY, INSTITUTIONAL SHARES)
PROSPECTUS
The Institutional Service Shares of Ohio Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Ohio municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Ohio, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
State of Ohio and Ohio municipalities consistent with stability of principal.
THE 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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CASH II SHARES 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34
- ------------------------------------------------------
ADDRESSES 35
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
(FORMERLY, INSTITUTIONAL SHARES)
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)...... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).............................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable).............................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)................. None
Exchange Fee....................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)................................................... 0.22%
12b-1 Fee.......................................................................... None
Total Other Expenses............................................................... 0.35%
Shareholder Services Fee (after waiver)(2).............................. 0.12%
Total Operating Expenses(3)................................................. 0.57%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The advisor can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.88% absent the voluntary
waivers of portions of the management fee and shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information". Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period............... $6 $18 $32 $ 71
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FORMERLY, INSTITUTIONAL SHARES)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.04 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.04) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN (b) 3.27% 3.61% 2.41% 2.33% 3.21% 2.40%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%*
- -----------------------------------------
Net investment income 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%*
- -----------------------------------------
Expense waiver/reimbursement (c) 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $59,721 $72,931 $62,499 $81,748 $74,342 $44,771
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established three classes of shares known as Institutional Service
Shares, Cash II Shares and Institutional Shares. This prospectus relates only to
Institutional Service 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 portfolio
investing in short-term municipal securities. The Fund may not be a suitable
investment for retirement plans or for non-Ohio taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $25,000 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
- --------------------------------------------------------------------------------
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 State of Ohio
and Ohio municipalities 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 complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 State of Ohio and Ohio municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of 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 Ohio and its political subdivisions and financing authorities,
and obligations of other states, territories, and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal
Securities"). Examples of Ohio Municipal Securities include, but are not limited
to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 Ohio Municipal
Securities from financial institutions such as commercial and investment
banks, savings 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 Ohio 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in tax-exempt or taxable securities, all of comparable quality to other
securities in which the Fund invests, 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 institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Ohio Municipal
Securities is subject to the federal alternative minimum tax.
OHIO MUNICIPAL SECURITIES
Ohio Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or
publicly owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Ohio 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 Ohio 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
Ohio 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 Ohio Municipal
Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Ohio 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
Ohio 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 Ohio 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. Due to these considerations, the Fund's
concentration in Ohio Municipal Securities may entail a greater level of risk
than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. The Fund will not invest more than 10%
of its net assets in securities subject to restrictions on resale under the
Securities Act of 1933. These investment limitations cannot be changed without
shareholder approval. The following limitation may be changed without
shareholder approval. 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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interests. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Trustees, and could result in severe
penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. 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 the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund 's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate as which relates to the average aggregate daily net assets of all
funds advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash
Trust--Institutional Service Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Ohio Municipal Cash Trust--Institutional
Service Shares. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests on
holidays when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at the
telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of December 2, 1996, MAHCO owned 27.17% and Panabco owned 34.33% of the
Institutional Shares of the Fund. As of the same time, Parcol & Co. owned 46.06%
of the Institutional Service Shares of the Fund and Gradison & Company, Inc.
owned 77.16% of the Cash II Shares of the Fund. These companies may, for certain
purposes, be deemed to control the Shares of the Fund and may be able to affect
the outcome of certain matters presented for a vote of shareholders.
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, within the limits of its investment policies, 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
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be
subject to Ohio income taxes to the extent that such distributions qualify as
exempt interest dividends under the Internal Revenue Code, and represent (i)
interest on obligations of Ohio, or its subdivisions which is exempt from
federal income tax; or (ii) interest or dividends from obligations issued by the
United States and its territories or possessions or by any authority, commission
or instrumentality of the United States which are exempt from state income tax
under federal laws. Conversely, to the extent that the distributions made by the
Fund are derived from other types of obligations, such distributions will be
subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporate franchise
tax to the extent that such distributions qualify as exempt interest dividends
under the Internal Revenue Code, and represent (i) interest from obligations of
Ohio, or its subdivisions which is exempt from federal income tax or (ii) net
interest income from obligations issued by the United States and its territories
or possessions or by any authority, commission or instrumentality of the United
States which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political subdivisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
laws to levy a tax on intangible income).
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers two other classes of shares called Cash II Shares and
Institutional Shares. Cash II Shares are sold at net asset value primarily to
retail customers of financial institutions and are subject to a minimum initial
investment of $25,000 over a 90-day period. Institutional Shares are sold at net
asset value primarily to financial institutions and are subject to a minimum
initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also
are subject to shareholder services fees. Institutional Shares are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--CASH II SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN (b) 2.96% 3.30% 2.10% 2.02% 2.90% 2.27%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%*
- -----------------------------------------
Net investment income 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%*
- -----------------------------------------
Expense waiver/reimbursement (c) 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $206,149 $188,234 $156,051 $127,017 $133,877 $94,081
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 34.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.02
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Distributions from net investment income (0.02)
- ------------------------------------------------------------------------ ---------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ------------------------------------------------------------------------ ---------
TOTAL RETURN (b) 2.22%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.37%*
- ------------------------------------------------------------------------
Net investment income 3.38%*
- ------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.51%*
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $72,680
- ------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--99.3%
- --------------------------------------------------------------------------------
OHIO--99.3%
----------------------------------------------------------------
$ 600,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs $ 600,000
(Visiting Nurses)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,535,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, 2,535,000
Inc.)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/ 5,875,000
(PNC Bank, N.A. LOC)
----------------------------------------------------------------
1,500,000 Belmont County, OH, Water System Improvement, 1,500,550
3.89% BANs, 12/19/1996
----------------------------------------------------------------
2,550,000 Berea, OH, Various Purpose, 4.10% BANs, 10/23/1997 2,555,969
----------------------------------------------------------------
3,894,000 Bowling Green, OH, 3.80% BANs, 12/5/1996 3,894,244
----------------------------------------------------------------
5,500,000 Brecksville-Broadview Heights CSD, OH, (Series 1996), 5,503,910
3.90% BANs, 1/17/1997
----------------------------------------------------------------
1,040,000 Canfield, OH Local School District, (Series 1996), 1,043,666
4.50% BANs, 10/2/1997
----------------------------------------------------------------
1,500,000 Cleveland Heights, OH, (Series 1996), 4.10% BANs, 8/28/1997 1,501,775
----------------------------------------------------------------
1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton 1,800,000
Memorial Hospital)/(National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,905,000 Columbiana County, OH, Industrial Development Revenue Bonds 1,905,000
Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown,
N.A. LOC)
----------------------------------------------------------------
800,000 Cuyahoga County, OH Hospital Authority Daily VRDNs (University 800,000
Hospitals Health System, Inc.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo
LOC)
----------------------------------------------------------------
3,600,000 Cuyahoga County, OH Hospital Authority Weekly VRDNs 3,600,000
(St. Lukes Hospital)/(First National Bank of Chicago LOC)
----------------------------------------------------------------
700,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League 700,000
(Cuyahoga County))/(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,650,000 Cuyahoga County, OH IDA Weekly VRDNs $ 1,650,000
(East Park Community, Inc.)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
525,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, 525,000
Inc.)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
690,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway 690,000
West)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,050,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing 1,050,000
Corp.)/(National City Bank, Kentucky LOC)
----------------------------------------------------------------
1,945,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon 1,945,000
Precision Casting Co. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
2,000,000 Dayton, OH Department of Aviation, (Series 1996), 4.50% BANs, 2,003,840
3/25/1997
----------------------------------------------------------------
1,635,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs 1,635,000
(Air Waves, Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
3,300,000 Elyria, OH, Various Purpose Improvement Notes, (Series 1996-2), 3,305,694
4.20% BANs, 9/25/1997
----------------------------------------------------------------
7,800,000 Franklin County, OH Hospital Facility Authority Weekly VRDNs 7,800,000
(Riverside United Methodist Hospital)/(National City Bank,
Cleveland, OH LOC)
----------------------------------------------------------------
3,620,000 Franklin County, OH Hospital Facility Authority, (Series 1992) 3,620,000
Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati
LOC)
----------------------------------------------------------------
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/ 4,500,000
(PNC Bank, Ohio, N.A. LOC)
----------------------------------------------------------------
3,055,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/ 3,055,000
(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
3,490,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon 3,490,000
L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC)
----------------------------------------------------------------
4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series 4,900,000
1996A) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series $ 2,100,000
1996B) Weekly VRDNs (Carams, Ltd.)/
(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly 2,000,000
Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
----------------------------------------------------------------
2,090,000 Franklin County, OH, Adjustable Rate Demand Economic Development 2,090,000
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (CPM
Investments)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
1,440,000 Franklin, OH County of, Health Care Facilities Revenue Bonds 1,440,000
(Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/
(Fifth Third Bancorp LOC)
----------------------------------------------------------------
1,300,000 Gates Mills Village, OH, Water System Improvement Notes, 3.70% 1,300,496
BANs, 3/26/1997
----------------------------------------------------------------
1,400,000 Green City, OH, Park Improvement General Ltd Tax Notes, 1,401,811
4.35% BANs, 2/7/1997
----------------------------------------------------------------
2,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park 2,000,000
Community)/(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
1,725,000 Hancock County, OH, (Series A), 4.50% BANs, 9/19/1997 1,732,305
----------------------------------------------------------------
2,000,000 Hancock County, OH, 4.27% BANs, 11/22/1996 2,000,637
----------------------------------------------------------------
4,400,000 Hancock County, OH, Various Purpose, 3.81% BANs, 11/22/1996 4,400,731
----------------------------------------------------------------
2,900,000 Highland Heights City, OH, Various Purpose, 3.89% BANs, 2,900,696
12/19/1996
----------------------------------------------------------------
4,000,000 Hilliard, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 4,000,000
(Medex, Inc.)/(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/ 2,000,000
(Rabobank Nederland, Utrecht LOC)
----------------------------------------------------------------
1,970,000 Holmes County, OH, Sanitary Sewer System Improvement Notes, 1,972,604
4.25% BANs, 5/21/1997
----------------------------------------------------------------
1,230,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs 1,230,000
(Lasermike, Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,300,000 Kent, OH, Adjustable Rate IDRB (Series 1994) Weekly VRDNs $ 1,300,000
(Raven's Metal Products, Inc. Project)/(First National Bank of
Ohio, Akron LOC)
----------------------------------------------------------------
3,300,000 Lake County, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 3,300,000
(Apsco Properties, LTD.)/(First National Bank of Ohio, Akron
LOC)
----------------------------------------------------------------
2,560,000 Lake County, OH, Hospital Improvement Bonds, 7.875% Bonds 2,628,820
(United States Treasury PRF), 1/1/1997 (@102)
----------------------------------------------------------------
2,815,000 Lake County, OH, Hospital Improvement Bonds, 8.00% Bonds 2,891,244
(United States Treasury PRF), 1/1/1997 (@102)
----------------------------------------------------------------
3,000,000 Lorain County, OH, 4.40% BANs, 9/19/1997 3,010,164
----------------------------------------------------------------
2,885,000 Lorain County, OH, Health Facilities Revenue Bonds (Series 2,885,000
1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third
Bank, Cincinnati LOC)
----------------------------------------------------------------
4,385,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer 4,385,000
Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC)
----------------------------------------------------------------
1,240,000 Lorain Port Authority, OH, Adjustable Rate Demand Port 1,240,000
Development Refunding Revenue Bonds (Series 1996) Weekly VRDNs
(Spitzer Project)/(Bank One, Cleveland, N.A. LOC)
----------------------------------------------------------------
1,200,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/ 1,200,000
(KeyBank, N.A. LOC)
----------------------------------------------------------------
2,000,000 Lucas County, OH IDA, (Series 1991) Weekly VRDNs (Ohio Citizens 2,000,000
Bank)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
1,775,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds 1,775,000
(Series 93) Weekly VRDNs (Lott Industries, Inc.)/(National City
Bank, Cleveland, OH LOC)
----------------------------------------------------------------
270,000 Lucas County, OH, Hospital Improvement Revenue Weekly 270,000
VRDNs (Sunshine Children's Home)/(National City Bank,
Cleveland, OH LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 8,000,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs $ 8,000,000
(Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH
LOC)
----------------------------------------------------------------
2,000,000 Lucas County, OH, Metropolitan Sewer & Water District 2,000,639
Improvement Notes (Series 1995), 4.25% BANs, 11/28/1996
----------------------------------------------------------------
5,300,000 Lucas County, OH, Sewer Improvement, 4.25% BANs, 10/28/1997 5,316,093
----------------------------------------------------------------
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International 5,325,000
Towers, Inc.)/(PNC Bank, N.A. LOC)
----------------------------------------------------------------
6,745,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995) Weekly 6,745,000
VRDNs (Copeland Oaks Project)/(Bank One,
Akron, N.A. LOC)
----------------------------------------------------------------
850,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/ 850,000
(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
870,000 Mayfield, OH City School District, 4.00% BANs, 4/24/1997 870,798
----------------------------------------------------------------
3,750,000 Medina County, OH, 4.50% BANs, 8/28/1997 3,766,288
----------------------------------------------------------------
7,000,000 Montgomery County, OH Health Facilities Authority, (Series 1995) 7,000,000
Weekly VRDNs (Sisters of Charity Health Care System)/
(Toronto-Dominion Bank LIQ)
----------------------------------------------------------------
1,970,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited 1,970,000
Partnership)/(Huntington National Bank, Columbus, OH LOC)
----------------------------------------------------------------
2,000,000 Muskingum County, OH, County Building Improvement 2,001,626
(Series 1996), 3.75% BANs, 3/4/1997
----------------------------------------------------------------
345,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, 345,000
N.A. LOC)
----------------------------------------------------------------
915,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/(National City 915,000
Bank, Cleveland, OH LOC), Optional Tender 2/1/1997
----------------------------------------------------------------
2,035,000 Ohio HFA Weekly VRDNs (Westchester Village)/ 2,035,000
(KeyBank, N.A. LOC)
----------------------------------------------------------------
7,235,000 Ohio HFA, 3.80% TOBs (Lincoln Park Associates)/ 7,235,000
(Comerica Bank, Detroit, MI LOC), Optional Tender 11/1/1996
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 8,500,000 Ohio HFA, Residential Mortgage Revenue Convertible $ 8,500,000
(1996 Series A-3), 3.40% TOBs (AIG Funding, Inc. INV),
Mandatory Tender 3/3/1997
----------------------------------------------------------------
7,700,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs 7,700,000
(GNMA COL)/(Commerzbank AG, Frankfurt LIQ)
----------------------------------------------------------------
9,510,000 (b) Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs 9,510,000
(GNMA COL)/(Bank of New York, New York LIQ)
----------------------------------------------------------------
8,800,000 (b) Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs 8,800,000
(Bank of New York, New York LIQ)/(GNMA LOC)
----------------------------------------------------------------
1,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 1,001,172
Certificates of Participation, 4.53% RANs, 12/31/1996
----------------------------------------------------------------
3,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 3,010,083
Certificates of Participation, 4.53% RANs, 6/30/1997
----------------------------------------------------------------
3,800,000 Ohio State Air Quality Development Authority, (Series 1998A) 3,800,000
Weekly VRDNs (PPG Industries, Inc.)
----------------------------------------------------------------
4,000,000 Ohio State Air Quality Development Authority, Revenue Bonds 4,000,000
(Series B) Daily VRDNs (Cincinnati Gas and Electric Co.)/ (J.P.
Morgan Delaware, Wilmington LOC)
----------------------------------------------------------------
1,880,000 Ohio State Higher Education Facility, Revenue Bonds Weekly 1,880,000
VRDNs (Notre Dame College Project)/(National City Bank,
Cleveland, OH LOC)
----------------------------------------------------------------
1,000,000 Ohio State Water Development Authority Weekly VRDNs (PPG 1,000,000
Industries, Inc.)
----------------------------------------------------------------
2,500,000 Ohio State Water Development Authority, Multimodal Water 2,500,000
Development (Series 1993) Weekly VRDNs (Timken Co.)/
(Wachovia Bank of Georgia N.A., Atlanta LOC)
----------------------------------------------------------------
3,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 3,000,000
1989) Weekly VRDNs (Duquesne Light Power Co.)/
(Barclays Bank PLC, London LOC)
----------------------------------------------------------------
3,500,000 Ohio State Water Development Authority, Pollution Control 3,500,000
Facilities Revenue Bonds, 3.80% TOBs (Union Bank of Switzerland,
Zurich LOC), Optional Tender 5/1/1997
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 600,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ (PNC $ 600,000
Bank, N.A. LOC)
----------------------------------------------------------------
1,320,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, 1,320,000
Inc.)/ (National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic 1,400,000
Corporation)/(National City Bank, Columbus, OH LOC)
----------------------------------------------------------------
1,250,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/ 1,250,000
(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
2,000,000 Ottawa County, OH, Regional Water System Notes, 2,001,927
3.98% BANs, 4/9/1997
----------------------------------------------------------------
1,000,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank 1,000,000
One, Cleveland, N.A. LOC), 12/1/1996
----------------------------------------------------------------
135,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/ (Bank 135,000
One, Akron, N.A. LOC)
----------------------------------------------------------------
370,000 Portage County, OH IDA, 4.00% TOBs (Neidlinger)/ 370,000
(KeyBank, N.A. LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
4,300,000 Portage County, OH IDA, Adjustable Rate IDRB (Series 1996) 4,300,000
Weekly VRDNs (Barnette Project)/(National City, Northeast LOC)
----------------------------------------------------------------
900,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs 900,000
(Lovejoy Industries)/(Star Bank, N.A., Cincinnati LOC)
----------------------------------------------------------------
5,700,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly VRDNs 5,700,000
(Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC)
----------------------------------------------------------------
1,800,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. 1,800,000
Francis Home)/(National City Bank, Cleveland, OH LOC)
----------------------------------------------------------------
3,890,000 Shaker Heights, OH, 4.25% BANs, 10/17/1997 3,906,151
----------------------------------------------------------------
800,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/ 800,000
(Fifth Third Bank, Cincinnati LOC)
----------------------------------------------------------------
560,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/ 560,000
(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs $ 2,000,000
(Cleveland Twist Drill Company)/(NationsBank, South LOC)
----------------------------------------------------------------
1,200,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,200,000
----------------------------------------------------------------
2,300,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs 2,300,000
(Wilk of Morris)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,300,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs 1,300,000
(Foundations Systems and Anchors, Inc. Project)/(Bank One,
Akron, N.A. LOC)
----------------------------------------------------------------
5,300,000 Stark County, OH IDR, IDRB (Series 1995) Weekly VRDNs 5,300,000
(Gramac Project, OH)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,340,000 Stow, OH, GO LT Various Purpose Refunding, 4.25% BANs, 1,341,037
12/20/1996
----------------------------------------------------------------
1,285,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs 1,285,000
(Nutro Machinery Corp., Project)/(Huntington National Bank,
Columbus, OH LOC)
----------------------------------------------------------------
2,700,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited 2,700,000
Partnership)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs 4,500,000
(Harry London Candies, Inc. )/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
725,000 Summit County, OH IDR, 3.80% TOBs (Bechmer-Boyce 725,000
Project)/(KeyBank, N.A. LOC), Optional Tender 1/15/1997
----------------------------------------------------------------
875,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/ 875,000
(Bank One, Akron, N.A. LOC), Optional Tender 2/15/1997
----------------------------------------------------------------
1,075,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial Products, 1,075,000
Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1996
----------------------------------------------------------------
355,000 Summit County, OH IDR, 4.00% TOBs (Keltec Industries)/ 355,000
(Bank One, Akron, N.A. LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
1,140,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool Co.)/ 1,140,000
(Bank One, Akron, N.A. LOC), Optional Tender 2/1/1997
----------------------------------------------------------------
760,000 Summit County, OH IDR, 4.00% TOBs (Universal Rack)/(National 760,000
City Bank, Cleveland, OH LOC), Optional Tender 3/1/1997
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 1,700,000 Summit County, OH IDR, Adjustable Rate IDRB (Series 1996) Weekly $ 1,700,000
VRDNs (Fomo Products, Inc.)/(First National Bank of Ohio, Akron
LOC)
----------------------------------------------------------------
920,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin 920,000
Printing Co., Inc.)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry 2,890,000
London Candies, Inc.)/(Bank One, Akron, N.A. LOC)
----------------------------------------------------------------
1,000,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech 1,000,000
Project (OH))/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,485,000 Summit County, OH IDR, Industrial Development Bonds 1,485,000
(Series 1996) Weekly VRDNs (Creative Screen Print Project)/
(National City, Northeast LOC)
----------------------------------------------------------------
1,450,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs 1,450,000
(Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC)
----------------------------------------------------------------
1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa 1,000,000
Corp.)/(Bayerische Vereinsbank AG, Munich LOC)
----------------------------------------------------------------
2,500,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs 2,500,000
(McSonald Steel Corp.)/(PNC Bank, N.A. LOC)
----------------------------------------------------------------
1,330,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) 1,330,000
Weekly VRDNs (Churchill Downs, Inc.)/(Bank One,
Columbus, N.A. LOC)
----------------------------------------------------------------
1,750,000 Trumbull County, OH, Correctional Facilities GO LT Notes, 1996 1,751,995
Renewal, 4.07% BANs, 4/10/1997
----------------------------------------------------------------
1,200,000 Tuscarawas County, OH, Adjustable Rate IDRB (Series 1995) Weekly 1,200,000
VRDNs (Primary Packaging, Inc.)/(First National Bank of Ohio,
Akron LOC)
----------------------------------------------------------------
3,254,624 Union Local School District, OH, Classroom Facilities Voted UT 3,263,171
GO, 4.45% BANs, 4/15/1997
----------------------------------------------------------------
3,800,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/ 3,800,000
(KeyBank, N.A. LOC)
----------------------------------------------------------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
OHIO--CONTINUED
----------------------------------------------------------------
$ 2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB
(Series 1996) Weekly VRDNs (Allied Moulded Products, Inc.)/
(KeyBank, N.A. LOC) $ 2,650,000
----------------------------------------------------------------
1,120,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, N.A., Cincinnati LOC) 1,120,000
----------------------------------------------------------------
1,210,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B)
Weekly VRDNs (Pine Ridge Shopping Center Company Project)/
(Star Bank, N.A., Cincinnati LOC) 1,210,000
----------------------------------------------------------------
1,400,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/
(National City Bank, Cleveland, OH LOC) 1,400,000
----------------------------------------------------------------
2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/
(Huntington National Bank, Columbus, OH LOC) 2,200,000
----------------------------------------------------------------
4,300,000 Youngstown, OH, Adjustable Rate Demand IDRB (Series 1996A)
Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 4,300,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $336,085,136
---------------------------------------------------------------- ------------
</TABLE>
At October 31, 1996, 49.9% of the total investments at market value were subject
to alternative minimum tax.
(a) The Trust may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
----------- ------------
<S> <C>
98.1% 1.9%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $18,310,000 which represents 5.41% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($338,549,831) at October 31, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
BANs --Bond Anticipation Notes
COL --Collateralized
CSD --Central School District
EDRB --Economic Development Revenue Bonds
GNMA --Government National Mortgage Association
GO --General Obligation
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDR --Industrial Development Revenue
IDRB --Industrial Development Revenue Bond
INV --Investment Agreement
LIQ --Liquidity Agreement
LOC --Letter of Credit
LT --Limited Tax
LTD --Limited
PCR --Pollution Control Revenue
PLC --Public Limited Company
PRF --Prerefunded
RANs --Revenue Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $336,085,136
- -------------------------------------------------------------------------------
Cash 236,765
- -------------------------------------------------------------------------------
Income receivable 2,777,561
- -------------------------------------------------------------------------------
Receivable for shares sold 11,287
- ------------------------------------------------------------------------------- ------------
Total assets 339,110,749
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed $ 45,440
- --------------------------------------------------------------------
Income distribution payable 315,778
- --------------------------------------------------------------------
Accrued expenses 199,700
- -------------------------------------------------------------------- --------
Total liabilities 560,918
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 338,549,831 shares outstanding $338,549,831
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------
$59,721,012 / 59,721,012 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
CASH II SHARES:
- -------------------------------------------------------------------------------
$206,148,774 / 206,148,774 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------
$72,680,045 / 72,680,045 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $11,230,260
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $1,183,374
- ---------------------------------------------------------------------
Administrative personnel and services fee 223,680
- ---------------------------------------------------------------------
Custodian fees 45,066
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 216,497
- ---------------------------------------------------------------------
Directors'/Trustees' fees 4,758
- ---------------------------------------------------------------------
Auditing fees 13,561
- ---------------------------------------------------------------------
Legal fees 5,183
- ---------------------------------------------------------------------
Portfolio accounting fees 93,684
- ---------------------------------------------------------------------
Distribution services fee -- Cash II Shares 611,752
- ---------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 181,201
- ---------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 509,793
- ---------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 48,568
- ---------------------------------------------------------------------
Share registration costs 57,328
- ---------------------------------------------------------------------
Printing and postage 19,665
- ---------------------------------------------------------------------
Insurance premiums 5,429
- --------------------------------------------------------------------- ----------
Total expenses 3,219,539
- ---------------------------------------------------------------------
Waivers
- ---------------------------------------------------------------------
Waiver of investment advisory fee $(570,677)
- ---------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (236,326)
- ---------------------------------------------------------
Waiver of shareholder services fee -- Institutional
Service Shares (91,783)
- ---------------------------------------------------------
Waiver of shareholder services fee -- Institutional
Shares (48,568)
- --------------------------------------------------------- ---------
Total waivers (947,354)
- --------------------------------------------------------------------- ----------
Net expenses 2,272,185
- ----------------------------------------------------------------------------------- -----------
Net investment income $ 8,958,075
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 8,958,075 $ 8,010,653
- ------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------
Institutional Service Shares (2,339,083) (2,660,655)
- -------------------------------------------------------------
Cash II Shares (5,962,329) (5,349,998)
- -------------------------------------------------------------
Institutional Shares (656,663) --
- ------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions
to shareholders (8,958,075) (8,010,653)
- ------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 1,408,349,215 1,275,288,208
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 6,083,711 5,470,332
- -------------------------------------------------------------
Cost of shares redeemed (1,337,048,550) (1,238,142,557)
- ------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 77,384,376 42,615,983
- ------------------------------------------------------------- --------------- ---------------
Change in net assets 77,384,376 42,615,983
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 261,165,455 218,549,472
- ------------------------------------------------------------- --------------- ---------------
End of period $ 338,549,831 $ 261,165,455
- ------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
OHIO MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Ohio Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares (effective March 5, 1996,
the Fund's Institutional Shares changed to Institutional Service Shares), Cash
II Shares and Institutional Shares (effective March 5, 1996, the Fund added
Institutional Shares).
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Fund
will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
<S> <C> <C>
Ohio HFA, Trust Receipts (Series 1996 FR/RI-6),
(GNMA COL) 9/4/96 $9,510,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-5),
(GNMA LOC) 6/6/96 8,800,000
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SERVICE SHARES 1996 1995
- ---------------------------- ------------ ------------
<S> <C> <C>
Shares sold 440,264,015 571,719,826
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 226,623 277,721
- -----------------------------------------------------------------
Shares redeemed (453,700,715) (561,565,338)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Service share
transactions (13,210,077) 10,432,209
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
CASH II SHARES 1996 1995
- -------------- ------------ ------------
<S> <C> <C>
Shares sold 681,930,901 703,568,382
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 5,797,497 5,192,611
- -----------------------------------------------------------------
Shares redeemed (669,813,991) (676,577,219)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Cash II share transactions 17,914,407 32,183,774
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SHARES 1996* 1995
- -------------------- ------------ ------------
<S> <C> <C>
Shares sold 286,154,299 --
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 59,591 --
- -----------------------------------------------------------------
Shares redeemed (213,533,844) --
- ----------------------------------------------------------------- ------------
Net change resulting from Institutional share transactions 72,680,046 --
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 77,384,376 42,615,983
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
* Reflects operations for the period from March 5, 1996 (date of initial public
investment) to October 31, 1996
At October 31, 1996, capital paid-in aggregated $338,549,831.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp.("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Cash II Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.30% of the average daily net assets of the Cash II
Shares, annually, to compensate
OHIO MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FSC. The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $527,800,000 and $491,520,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 71.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.3% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Ohio Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1996, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2, 14 and 15 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as
of October 31, 1996, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Ohio Municipal Cash Trust
Institutional Service 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OHIO MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
Prospectus dated December 31, 1996
[LOGO]
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229857
G00211-02-SS (12/96)
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Virginia Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Virginia municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Virginia, or its
political subdivisions and financing authorities, but which provide income
exempt from federal regular income and the income tax imposed by the
Commonwealth of Virginia consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Virginia Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
HOW TO REDEEM SHARES 9
ACCOUNT AND SHARE INFORMATION 10
TAX INFORMATION 11
Federal Income Tax 11
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
PERFORMANCE INFORMATION 12
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 13
FINANCIAL STATEMENTS 14
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 27
ADDRESSES 28
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.25%
12b-1 Fee None
Total Other Expenses 0.24%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.49%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.89% absent the voluntary
waivers of a portion of the management fee and the shareholder services
fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time $5 $16 $27 $62
period
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.04 0.03 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.04) (0.03) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.24% 3.56% 2.57% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.49% 0.33% 0.09%*
Net investment income 3.19% 3.50% 2.56% 2.68%*
Expense waiver/reimbursement(c) 0.40% 0.42% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $26,302 $22,642 $20,360 $7,210
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of
initial public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional 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 capacity
as a convenient means of accumulating an interest in a professionally
managed portfolio investing primarily in short-term Virginia municipal
securities. The Fund may not be a suitable investment for retirement plans
or for non-Virginia taxpayers because it invests in municipal securities of
that state. A minimum initial investment of $25,000 over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of
Virginia 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 complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 Virginia
state income tax or at least 80% of its net assets will be invested in
obligations, the interest income from which is exempt from federal regular
and Virginia state income tax. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of 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 Virginia and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia ("Virginia Municipal Securities"). Examples of Virginia Municipal
Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Virginia
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Virginia 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Virginia Municipal Securities is subject to the federal alternative minimum
tax.
VIRGINIA MUNICIPAL SECURITIES
Virginia Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Virginia Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Virginia 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 Virginia Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 Virginia 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 Virginia Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in Virginia 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 Virginia 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 Virginia 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.
Due to these risk considerations, the Fund's concentration in Virginia
Municipal Securities may entail a greater level of risk than other types of
money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 15%
of the value of its total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to 0.40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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 the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
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 shares from the value of Fund assets
attributable to shares, and dividing the remainder by the number of 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased either by wire or by
check. 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. The
minimum initial investment is $25,000. However, an account may be opened
with a smaller amount as long as the minimum is reached over a 90-day
period. Minimum investments will be calculated by combining all accounts
maintained with the Fund. Financial institutions may impose different
minimum investment requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Virginia Municipal Cash Trust -- Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Virginia Municipal Cash
Trust -- Institutional Shares. Please include an account number on the
check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement. Under limited circumstances, arrangements
may be made with the distributor for same-day payment of proceeds, without
that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through
ACH will not be wired until that method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company, or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 2, 1996, Comfort & Company, Hampton, Virginia owned 29.94% of
the voting securities of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
Virginia. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund
will not be subject to Virginia income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest from obligations issued by or on
behalf of the Commonwealth of Virginia or any political subdivision thereof;
or (ii) interest from obligations issued by a territory or possession of the
United States or any political subdivision thereof which federal law exempts
from state income taxes. Conversely, to the extent that distributions made
by the Fund are attributable to other types of obligations, such
distributions will be subject to Virginia income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily
to financial institutions acting in an agency capacity and are subject to a
minimum initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan but are
subject to shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.02) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.14% 3.46% 2.44% 0.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.59% 0.59% 0.40% 0.19%*
Net investment income 3.10% 3.38% 2.42% 2.67%*
Expense waiver/reimbursement(c) 0.30% 0.32% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $177,575 $127,083 $100,084 $45,648
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of
initial public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--100.8%
VIRGINIA--92.9%
$ 6,552,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/(Sanwa
Bank Ltd, Osaka LOC) $ 6,552,000
7,100,000 Alexandria, VA Redevelopment and Housing Authority Weekly
VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America
INS)/(Sumitomo Bank Ltd., Osaka LIQ) 7,100,000
2,300,000 Alexandria, VA Redevelopment and Housing Authority,
(Series 1996A) Weekly VRDNs (Glebe Park Apartments Project)/
(Kredietbank N.V., Brussels LOC) 2,300,000
3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series 1996B
Weekly VRDNs (Buckingham Village Apartments)/(First Union
National Bank, Charlotte, N.C. LOC) 3,500,000
2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers
Waste System)/(Morgan Guaranty Trust Co., New York LOC) 2,200,000
750,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/
(Citibank NA, New York LOC) 750,000
2,500,000 Bedford County, VA IDA, (Series 1996) Weekly VRDNs (Nekoosa
Packaging Corporation Project)/(Canadian Imperial Bank of
Commerce, Toronto LOC) 2,500,000
3,200,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs
(Emkay Holdings, L.L.C. Project)/(State Street Bank and Trust
Co. LOC) 3,200,000
9,900,000 Campbell County, VA IDA, Solid Waste Disposal Facilities Revenue
ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of
Japan Ltd., Tokyo LOC) 9,900,000
7,250,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs
(Kentucky Derby Hosiery Co, Inc. Project)/(Liberty National Bank &
Trust Co. LOC) 7,250,000
1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility Revenue
Bonds (Series 1996) Weekly VRDNs (Chambers Development of
Virginia, Inc. Project)/(Morgan Guaranty Trust Co., New York LOC) 1,000,000
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 1,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo)/(Union
Bank of Switzerland, Zurich LOC) $ 1,900,000
2,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo
Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka
LOC) 2,000,000
1,500,000 Chesapeake, VA, 6.50% Bonds (United States Treasury PRF),
7/1/1997 (@102) 1,555,954
5,000,000 Commonwealth of Virginia, GO BANs (1996 Series), 3.50% CP,
Mandatory Tender 11/8/1996 5,000,000
1,357,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs
(Tindall Concrete VA, Inc.)/(First Union National Bank, Charlotte,
N.C. LOC) 1,357,000
3,515,000 Dinwiddie County, VA IDA, IDRB (Series 1991) Weekly VRDNs
(Maclin-Zimmer-Mcgill Tobacco Co., Inc.)/(Wachovia Bank of NC,
NA, Winston-Salem LOC) 3,515,000
1,000,000 Fairfax County, VA EDA, (Series 1995) Weekly VRDNs (American
Society of Civil Engineers Foundation, Inc. Project)/(Mellon Bank
NA, Pittsburgh LOC) 1,000,000
3,000,000 Fairfax County, VA Housing Authority Weekly VRDNs (Chase
Commons Associates)/(Bankers Trust Co., New York LOC) 3,000,000
1,900,000 Fairfax County, VA IDA Weekly VRDNs (Inova Health System)/
(Credit Suisse, Zurich LIQ) 1,900,000
4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.45% CP (Inova Health
System), Mandatory Tender 11/21/1996 4,000,000
5,710,000 Fairfax County, VA, Public Improvement Bonds (Series A), 5.50%
Bonds, 6/1/1997 5,769,921
1,250,000 Fairfax County, VA, UT GO Refunding Bonds (Series B), 6.60% Bonds
(United States Treasury PRF), 11/1/1996 (@101) 1,262,500
6,100,000 Falls Church, VA IDA, (Series 1985), 3.70% TOBs (Kaiser Permanente
Medical Care Program), Mandatory Tender 11/1/1996 6,100,000
600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly
VRDNs (Warrenton Development Co.)/(Nationsbank, N.A. LOC) 600,000
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs (Thomasville
Furniture Industries)/(Union Bank of Switzerland, Zurich LOC) $ 7,113,000
4,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) Weekly
VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of America
Illinois LOC) 4,500,000
1,070,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs (Robertshaw
Controls Company Project)/(Nationsbank, N.A. LOC) 1,070,000
3,000,000 Halifax, VA IDA, MMMs, PCR, 3.65% CP (Virginia Electric Power
Co.), Mandatory Tender 12/10/1996 3,000,000
7,500,000 Halifax, VA IDA, MMMs, PCR, 3.80% CP (Virginia Electric Power
Co.), Mandatory Tender 2/14/1997 7,500,000
4,000,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric Power
Co.), Mandatory Tender 11/13/1996 4,000,000
900,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc. Project)/
(Nationsbank, N.A. LOC) 900,000
1,535,000 Loudoun County, VA, 6.70% Bonds, 6/1/1997 1,560,224
2,000,000 Lynchburg, VA, 3.15% BANs, 3/1/1997 2,000,315
3,000,000 Newport News, VA Redevelopment & Housing Authority,
(Series 1990) Weekly VRDNs (Fredericksburg-Oxford)/(Bankers Trust
Co., New York LOC) 3,000,000
570,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.25) 583,183
1,435,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.25) 1,468,661
1,540,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.5) 1,579,885
470,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.5) 482,014
3,000,000 Norfolk, VA, UT GO, 6.60% Bonds (United States Treasury PRF),
6/1/1997 (@102) 3,107,742
1,500,000 Norfolk, VA, UT GO, 6.70% Bonds (United States Treasury PRF),
6/1/1997 (@102) 1,553,561
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 1,425,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh Real
Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank One, Cleveland,
N.A. LOC) $ 1,425,000
915,000 Richmond, VA IDA, Industrial Development Revenue Refunding
Bonds (Series 1987-B), 3.75% TOBs (Crow-Klein-Macfarlane Project)/
(First Union National Bank of Virginia LOC), Optional Tender
11/15/1996 915,000
3,200,000 Richmond, VA Redevelopment & Housing Authority, (Series 1989)
Weekly VRDNs (Belmont Apartment)/(First Union National Bank,
Charlotte, N.C. LOC) 3,200,000
2,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 2,160,000
3,555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 3,555,000
3,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 3,500,000
2,900,000 South Hill, VA IDA, IDRB (Series 1987) Weekly VRDNs (South Hill
Veneers, Inc Project)/(Bank One, Columbus, N.A. LOC) 2,900,000
2,375,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville
Properties Bluefield)/(Huntington National Bank, Columbus,
OH LOC) 2,375,000
2,105,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean Ranch
Motel Corp.)/(Nationsbank, N.A. LOC) 2,105,000
6,400,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 6,400,000
3,200,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding
Bonds (Series 1987A), 3.50% CP (Dominion Terminal Associates)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender
11/25/1996 3,200,000
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 3,135,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding
Bonds (Series 1987A), 3.65% CP (Dominion Terminal Associates)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender
1/22/1997 $ 3,135,000
5,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds
(Series 1992), 3.60% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto
LOC), Mandatory Tender 1/17/1997 5,500,000
2,000,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds
(Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto
LOC), Mandatory Tender 1/21/1997 2,000,000
4,944,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly VRDNs
(Eeco Project)/(Nationsbank, N.A. LOC) 4,944,000
1,000,000 Virginia State Public Building Authority, (Series C), 4.35% Bonds,
8/1/1997 1,003,969
1,060,000 Virginia State Public School Authority, Series A, 6.85% Bonds (United
States Treasury PRF), 1/1/1997 (@102) 1,086,499
1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial
Williamsburg Foundation Museum)/(Nationsbank, N.A. LOC) 1,507,000
1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco Filter
Resources, Inc. Project)/(Harris Trust & Savings Bank, Chicago LOC) 1,575,000
3,300,000 Winchester, VA IDA, Hospital Revenue Bonds, 4.05% Bonds
(Winchester Medical Center, Inc.)/(AMBAC INS), 1/1/1997 3,303,454
5,000,000 York County, VA IDA, (Series 1985), 3.80% CP (Virginia Electric
Power Co.), Mandatory Tender 1/23/1997 5,000,000
Total 189,420,882
VIRGIN ISLANDS--2.9%
6,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding
Bonds (1995 Series B), 3.50%, 3.75% TOBs (Trinity Funding Company
INV), Mandatory Tender 11/1/1996, 6/1/1997 6,000,000
PUERTO RICO--5.0%
1,500,000 Puerto Rico Electric Power Authority, (Series L), 8.40% Bonds
(United States Treasury PRF), 7/1/1997 (@102) 1,573,424
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--CONTINUED
$ 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 2/14/1997 $ 5,000,000
3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A),
3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC), Optional Tender 9/1/1997 3,501,407
TOTAL 10,074,831
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 205,495,713
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 52% of the
portion as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($203,876,450) at October 31, 1996.
The following acronyms are used throughout this portfolio:
ACES -- Adjustable Convertible Extendable Securities
AMBAC -- American Municipal Bond Assurance Corporation
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
EDA -- Economic Development Authority
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDRB -- Industrial Development Revenue Bond
INS -- Insured
INV -- Investment Agreement
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MMMs -- Money Market Municipals
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
PRF -- Prerefunded
TOBs -- Tender Option Bonds
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 205,495,713
Cash 187,299
Income receivable 1,414,115
Receivable for shares sold 327
Deferred expenses 17,555
Total assets 207,115,009
LIABILITIES:
Payable for investments purchased $ 3,000,000
Income distribution payable 179,523
Accrued expenses 59,036
Total liabilities 3,238,559
Net Assets for 203,876,450 shares outstanding $ 203,876,450
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$26,301,933 / 26,301,933 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$177,574,517 / 177,574,517 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,065,502
EXPENSES:
Investment advisory fee $ 657,332
Administrative personnel and services fee 155,000
Custodian fees 23,447
Transfer and dividend disbursing agent fees and expenses 53,778
Directors'/Trustees' fees 1,937
Auditing fees 13,561
Legal fees 4,324
Portfolio accounting fees 62,801
Shareholder services fee -- Institutional Shares 59,623
Shareholder services fee -- Institutional Service Shares 351,209
Share registration costs 49,212
Printing and postage 18,973
Insurance premiums 5,484
Miscellaneous 9,703
Total expenses 1,466,384
Waivers --
Waiver of investment advisory fee $ (243,090)
Waiver of shareholder services fee -- Institutional Shares (59,623)
Waiver of shareholder services fee -- Institutional Service Shares (210,725)
Total waivers (513,438)
Net expenses 952,946
Net investment income $ 5,112,556
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 5,112,556 $ 4,384,563
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (761,548) (834,541)
Institutional Service Shares (4,351,008) (3,550,022)
Change in net assets resulting from distributions to
shareholders (5,112,556) (4,384,563)
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,246,683,348 1,020,240,888
Net asset value of shares issued to shareholders in payment
of distributions declared 3,397,142 2,822,568
Cost of shares redeemed (1,195,928,451) (993,783,278)
Change in net assets resulting from share transactions 54,152,039 29,280,178
Change in net assets 54,152,039 29,280,178
NET ASSETS:
Beginning of period 149,724,411 120,444,233
End of period $ 203,876,450 $ 149,724,411
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Virginia Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of
Virginia consistent with stability of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
<S> <C> <C>
INSTITUTIONAL SHARES SHARES SHARES
Shares sold 113,430,564 87,290,291
Shares issued to shareholders in payment of distributions declared 6,598 15,666
Shares redeemed (109,777,058) (85,024,334)
Net change resulting from Institutional share transactions 3,660,104 2,281,623
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 1,133,252,784 932,950,597
Shares issued to shareholders in payment of distributions declared 3,390,544 2,806,902
Shares redeemed (1,086,151,393) (908,758,944)
Net change resulting from Institutional Service share transactions 50,491,935 26,998,555
Net change resulting from share transactions 54,152,039 29,280,178
</TABLE>
At October 31, 1996, capital paid-in aggregated $203,876,450.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $33,493 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $6,699 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the
Trust engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $356,280,000 and $348,905,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 65% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 5% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(VIRGINIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Virginia Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1996, and the related statement of
operations for the year then ended and the statement of changes in net
assets and the financial highlights (see pages 2 and 13 of the prospectus)
for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Virginia Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 15, 1996
ADDRESSES
Virginia 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
VIRGINIA MUNICIPAL
CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End, Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229816
3080501A-IS (12/96)
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Virginia Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Virginia
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Virginia, or its political subdivisions and financing authorities, but which
provide income exempt from federal regular income tax and the income tax
imposed by the Commonwealth of Virginia consistent with stability of
principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Virginia Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional
Service Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 13
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 28
ADDRESSES 29
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.25%
12b-1 Fee None
Total Other Expenses 0.34%
Shareholder Services Fee (after waiver)(2) 0.10%
Total Operating Expenses(3) 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.89% absent the voluntary
waivers of portions of the management fee and the shareholder services
fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service
Shares of the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Fund
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $6 $19 $33 $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.02) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.14% 3.46% 2.44% 0.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.59% 0.59% 0.40% 0.19%*
Net investment income 3.10% 3.38% 2.42% 2.67%*
Expense waiver/reimbursement(c) 0.30% 0.32% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $177,575 $127,083 $100,084 $45,648
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of
initial public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Service Shares of the Fund, which
are designed primarily for financial institutions acting in an agency
capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing primarily in short-term Virginia
municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Virginia taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $25,000
over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of
Virginia 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 complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 Virginia
state income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax
for corporations.) Unless indicated otherwise, the investment policies may
be changed by the Board of 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 Virginia and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia ("Virginia Municipal Securities"). Examples of Virginia Municipal
Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Virginia
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Virginia 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Virginia Municipal Securities is subject to the federal alternative minimum
tax.
VIRGINIA MUNICIPAL SECURITIES
Virginia Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Virginia Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Virginia 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 Virginia Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size 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 Virginia 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 Virginia Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in Virginia 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 Virginia 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 Virginia 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. Due to these risk
considerations, the Fund's concentration in Virginia Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 15%
of the value of total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to 0.40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES. 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 the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of Institutional Service
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 shares from the value of Fund assets
attributable to shares, and dividing the remainder by the number of 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $25,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling 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 in order to begin earning dividends that same
day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: Virginia Municipal Cash
Trust--Institutional Service Shares; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot
be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Virginia Municipal Cash
Trust -- Institutional Service Shares. Please include an account number on
the check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Services Company
receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Under
limited circumstances, arrangements may be made with the distributor for
same-day payment of proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that method
of payment has cleared. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement. Under limited
circumstances, arrangements may be made with the distributor for same-day
payment of proceeds, without that day's dividend, for redemption requests
received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares
purchased by check or through ACH will not be wired until that method of
payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600.
If share certificates have been issued, they should be sent unendorsed with
the written request by registered or certified mail to the address noted
above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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, within the limits of its investment
policies, 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
Virginia. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund
will not be subject to Virginia income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest from obligations issued by or on
behalf of the Commonwealth of Virginia or any political subdivision thereof;
or (ii) interest from obligations issued by a territory or possession of the
United States or any political subdivision thereof which federal law exempts
from state income taxes. Conversely, to the extent that distributions made
by the Fund are attributable to other types of obligations, such
distributions will be subject to Virginia income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares
that are sold primarily to financial institutions acting in a fiduciary
capacity. Institutional Shares are sold at net asset value and are subject
to a Shareholder Services Agreement. Investment in Institutional Shares are
subject to a minimum initial investment of $25,000 over a 90-day period. All
classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
VIRGINIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.04 0.03 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.04) (0.03) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.24% 3.56% 2.57% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.49% 0.33% 0.09%*
Net investment income 3.19% 3.50% 2.56% 2.68%*
Expense waiver/reimbursement(c) 0.40% 0.42% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $26,302 $22,642 $20,360 $7,210
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of
initial public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--100.8%
VIRGINIA--92.9%
$ 6,552,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/(Sanwa
Bank Ltd, Osaka LOC) $ 6,552,000
7,100,000 Alexandria, VA Redevelopment and Housing Authority Weekly
VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America
INS)/(Sumitomo Bank Ltd., Osaka LIQ) 7,100,000
2,300,000 Alexandria, VA Redevelopment and Housing Authority,
(Series 1996A) Weekly VRDNs (Glebe Park Apartments Project)/
(Kredietbank N.V., Brussels LOC) 2,300,000
3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series 1996B
Weekly VRDNs (Buckingham Village Apartments)/(First Union
National Bank, Charlotte, N.C. LOC) 3,500,000
2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers
Waste System)/(Morgan Guaranty Trust Co., New York LOC) 2,200,000
750,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/
(Citibank NA, New York LOC) 750,000
2,500,000 Bedford County, VA IDA, (Series 1996) Weekly VRDNs (Nekoosa
Packaging Corporation Project)/(Canadian Imperial Bank of
Commerce, Toronto LOC) 2,500,000
3,200,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs
(Emkay Holdings, L.L.C. Project)/(State Street Bank and Trust
Co. LOC) 3,200,000
9,900,000 Campbell County, VA IDA, Solid Waste Disposal Facilities Revenue
ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of
Japan Ltd., Tokyo LOC) 9,900,000
7,250,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs
(Kentucky Derby Hosiery Co, Inc. Project)/(Liberty National Bank &
Trust Co. LOC) 7,250,000
1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility Revenue
Bonds (Series 1996) Weekly VRDNs (Chambers Development of
Virginia, Inc. Project)/(Morgan Guaranty Trust Co., New York LOC) 1,000,000
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 1,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo)/(Union
Bank of Switzerland, Zurich LOC) $ 1,900,000
2,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo
Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka
LOC) 2,000,000
1,500,000 Chesapeake, VA, 6.50% Bonds (United States Treasury PRF),
7/1/1997 (@102) 1,555,954
5,000,000 Commonwealth of Virginia, GO BANs (1996 Series), 3.50% CP,
Mandatory Tender 11/8/1996 5,000,000
1,357,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs
(Tindall Concrete VA, Inc.)/(First Union National Bank, Charlotte,
N.C. LOC) 1,357,000
3,515,000 Dinwiddie County, VA IDA, IDRB (Series 1991) Weekly VRDNs
(Maclin-Zimmer-Mcgill Tobacco Co., Inc.)/(Wachovia Bank of NC,
NA, Winston-Salem LOC) 3,515,000
1,000,000 Fairfax County, VA EDA, (Series 1995) Weekly VRDNs (American
Society of Civil Engineers Foundation, Inc. Project)/(Mellon Bank
NA, Pittsburgh LOC) 1,000,000
3,000,000 Fairfax County, VA Housing Authority Weekly VRDNs (Chase
Commons Associates)/(Bankers Trust Co., New York LOC) 3,000,000
1,900,000 Fairfax County, VA IDA Weekly VRDNs (Inova Health System)/
(Credit Suisse, Zurich LIQ) 1,900,000
4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.45% CP (Inova Health
System), Mandatory Tender 11/21/1996 4,000,000
5,710,000 Fairfax County, VA, Public Improvement Bonds (Series A), 5.50%
Bonds, 6/1/1997 5,769,921
1,250,000 Fairfax County, VA, UT GO Refunding Bonds (Series B), 6.60% Bonds
(United States Treasury PRF), 11/1/1996 (@101) 1,262,500
6,100,000 Falls Church, VA IDA, (Series 1985), 3.70% TOBs (Kaiser Permanente
Medical Care Program), Mandatory Tender 11/1/1996 6,100,000
600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly
VRDNs (Warrenton Development Co.)/(Nationsbank, N.A. LOC) 600,000
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs (Thomasville
Furniture Industries)/(Union Bank of Switzerland, Zurich LOC) $ 7,113,000
4,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) Weekly
VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of America
Illinois LOC) 4,500,000
1,070,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs (Robertshaw
Controls Company Project)/(Nationsbank, N.A. LOC) 1,070,000
3,000,000 Halifax, VA IDA, MMMs, PCR, 3.65% CP (Virginia Electric Power
Co.), Mandatory Tender 12/10/1996 3,000,000
7,500,000 Halifax, VA IDA, MMMs, PCR, 3.80% CP (Virginia Electric Power
Co.), Mandatory Tender 2/14/1997 7,500,000
4,000,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric Power
Co.), Mandatory Tender 11/13/1996 4,000,000
900,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc. Project)/
(Nationsbank, N.A. LOC) 900,000
1,535,000 Loudoun County, VA, 6.70% Bonds, 6/1/1997 1,560,224
2,000,000 Lynchburg, VA, 3.15% BANs, 3/1/1997 2,000,315
3,000,000 Newport News, VA Redevelopment & Housing Authority,
(Series 1990) Weekly VRDNs (Fredericksburg-Oxford)/(Bankers Trust
Co., New York LOC) 3,000,000
570,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.25) 583,183
1,435,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.25) 1,468,661
1,540,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.5) 1,579,885
470,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury
PRF), 7/1/1997 (@100.5) 482,014
3,000,000 Norfolk, VA, UT GO, 6.60% Bonds (United States Treasury PRF),
6/1/1997 (@102) 3,107,742
1,500,000 Norfolk, VA, UT GO, 6.70% Bonds (United States Treasury PRF),
6/1/1997 (@102) 1,553,561
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 1,425,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh Real
Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank One, Cleveland,
N.A. LOC) $ 1,425,000
915,000 Richmond, VA IDA, Industrial Development Revenue Refunding
Bonds (Series 1987-B), 3.75% TOBs (Crow-Klein-Macfarlane Project)/
(First Union National Bank of Virginia LOC), Optional Tender
11/15/1996 915,000
3,200,000 Richmond, VA Redevelopment & Housing Authority, (Series 1989)
Weekly VRDNs (Belmont Apartment)/(First Union National Bank,
Charlotte, N.C. LOC) 3,200,000
2,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 2,160,000
3,555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 3,555,000
3,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 3,500,000
2,900,000 South Hill, VA IDA, IDRB (Series 1987) Weekly VRDNs (South Hill
Veneers, Inc Project)/(Bank One, Columbus, N.A. LOC) 2,900,000
2,375,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville
Properties Bluefield)/(Huntington National Bank, Columbus,
OH LOC) 2,375,000
2,105,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean Ranch
Motel Corp.)/(Nationsbank, N.A. LOC) 2,105,000
6,400,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia,
Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 6,400,000
3,200,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding
Bonds (Series 1987A), 3.50% CP (Dominion Terminal Associates)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender
11/25/1996 3,200,000
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 3,135,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding
Bonds (Series 1987A), 3.65% CP (Dominion Terminal Associates)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender
1/22/1997 $ 3,135,000
5,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds
(Series 1992), 3.60% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto
LOC), Mandatory Tender 1/17/1997 5,500,000
2,000,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds
(Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto
LOC), Mandatory Tender 1/21/1997 2,000,000
4,944,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly VRDNs
(Eeco Project)/(Nationsbank, N.A. LOC) 4,944,000
1,000,000 Virginia State Public Building Authority, (Series C), 4.35% Bonds,
8/1/1997 1,003,969
1,060,000 Virginia State Public School Authority, Series A, 6.85% Bonds (United
States Treasury PRF), 1/1/1997 (@102) 1,086,499
1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial
Williamsburg Foundation Museum)/(Nationsbank, N.A. LOC) 1,507,000
1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco Filter
Resources, Inc. Project)/(Harris Trust & Savings Bank, Chicago LOC) 1,575,000
3,300,000 Winchester, VA IDA, Hospital Revenue Bonds, 4.05% Bonds
(Winchester Medical Center, Inc.)/(AMBAC INS), 1/1/1997 3,303,454
5,000,000 York County, VA IDA, (Series 1985), 3.80% CP (Virginia Electric
Power Co.), Mandatory Tender 1/23/1997 5,000,000
Total 189,420,882
VIRGIN ISLANDS--2.9%
6,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding
Bonds (1995 Series B), 3.50%, 3.75% TOBs (Trinity Funding Company
INV), Mandatory Tender 11/1/1996, 6/1/1997 6,000,000
PUERTO RICO--5.0%
1,500,000 Puerto Rico Electric Power Authority, (Series L), 8.40% Bonds
(United States Treasury PRF), 7/1/1997 (@102) 1,573,424
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--CONTINUED
$ 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 2/14/1997 $ 5,000,000
3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A),
3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC), Optional Tender 9/1/1997 3,501,407
TOTAL 10,074,831
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 205,495,713
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 52% of the
portion as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($203,876,450) at October 31, 1996.
The following acronyms are used throughout this portfolio:
ACES -- Adjustable Convertible Extendable Securities
AMBAC -- American Municipal Bond Assurance Corporation
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
EDA -- Economic Development Authority
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDRB -- Industrial Development Revenue Bond
INS -- Insured
INV -- Investment Agreement
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MMMs -- Money Market Municipals
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
PRF -- Prerefunded
TOBs -- Tender Option Bonds
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 205,495,713
Cash 187,299
Income receivable 1,414,115
Receivable for shares sold 327
Deferred expenses 17,555
Total assets 207,115,009
LIABILITIES:
Payable for investments purchased $ 3,000,000
Income distribution payable 179,523
Accrued expenses 59,036
Total liabilities 3,238,559
Net Assets for 203,876,450 shares outstanding $ 203,876,450
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$26,301,933 / 26,301,933 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$177,574,517 / 177,574,517 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,065,502
EXPENSES:
Investment advisory fee $ 657,332
Administrative personnel and services fee 155,000
Custodian fees 23,447
Transfer and dividend disbursing agent fees and expenses 53,778
Directors'/Trustees' fees 1,937
Auditing fees 13,561
Legal fees 4,324
Portfolio accounting fees 62,801
Shareholder services fee -- Institutional Shares 59,623
Shareholder services fee -- Institutional Service Shares 351,209
Share registration costs 49,212
Printing and postage 18,973
Insurance premiums 5,484
Miscellaneous 9,703
Total expenses 1,466,384
Waivers --
Waiver of investment advisory fee $ (243,090)
Waiver of shareholder services fee -- Institutional Shares (59,623)
Waiver of shareholder services fee -- Institutional Service Shares (210,725)
Total waivers (513,438)
Net expenses 952,946
Net investment income $ 5,112,556
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 5,112,556 $ 4,384,563
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (761,548) (834,541)
Institutional Service Shares (4,351,008) (3,550,022)
Change in net assets resulting from distributions to
shareholders (5,112,556) (4,384,563)
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,246,683,348 1,020,240,888
Net asset value of shares issued to shareholders in payment
of distributions declared 3,397,142 2,822,568
Cost of shares redeemed (1,195,928,451) (993,783,278)
Change in net assets resulting from share transactions 54,152,039 29,280,178
Change in net assets 54,152,039 29,280,178
NET ASSETS:
Beginning of period 149,724,411 120,444,233
End of period $ 203,876,450 $ 149,724,411
</TABLE>
(See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Virginia Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of
Virginia consistent with stability of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
<S> <C> <C>
INSTITUTIONAL SHARES SHARES SHARES
Shares sold 113,430,564 87,290,291
Shares issued to shareholders in payment of distributions declared 6,598 15,666
Shares redeemed (109,777,058) (85,024,334)
Net change resulting from Institutional share transactions 3,660,104 2,281,623
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 1,133,252,784 932,950,597
Shares issued to shareholders in payment of distributions declared 3,390,544 2,806,902
Shares redeemed (1,086,151,393) (908,758,944)
Net change resulting from Institutional Service share transactions 50,491,935 26,998,555
Net change resulting from share transactions 54,152,039 29,280,178
</TABLE>
At October 31, 1996, capital paid-in aggregated $203,876,450.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $33,493 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $6,699 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the
Trust engaged in purchase and sale transactions with funds that have a
common investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $356,280,000 and $348,905,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 65% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 5% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(VIRGINIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Virginia Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996, and the related statement
of operations for the year then ended and the statement of changes in net
assets and the financial highlights (see pages 2 and 14 of the prospectus)
for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Virginia Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 15, 1996
ADDRESSES
Virginia Municipal Cash Trust
Institutional Service 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
VIRGINIA MUNICIPAL
CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End, Management
Investment Company
Prospectus dated December 31 ,1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229824
3080501A-SS (12/96)
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Virginia Municipal Cash Trust (the ``Fund'), a portfolio
of Federated Municipal Trust (the ``Trust') dated December 31, 1996.
This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229824
Cusip 314229816
3080501B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
VIRGINIA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Investment Adviser 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 12
Independent Public Accountants 12
SHAREHOLDER SERVICES 12
DETERMINING NET ASSET VALUE 12
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 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 16
Performance Comparisons 16
Economic and Market Information 16
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 17
Institutional Clients 17
Trust Organizations 17
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 17
APPENDIX 18
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
VIRGINIA INVESTMENT RISKS
The Fund invests in obligations of Commonwealth of Virginia (Virginia''or
the `Commonwealth'') issuers which results in the Fund's performance being
subject to risks associated with the overall conditions present within the
Commonwealth. The following information is a brief summary of the recent
prevailing economic conditions and a general summary of the Commonwealth's
financial status. This information is based on official statements related
to securities that have been offered by Virginia issuers and from other
sources believed to be reliable but should not be relied upon as a complete
description of all relevant information.
The Commonwealth's credit strength is derived from a diversified economy,
above average wealth levels, low unemployment rates, conservative financial
management, and a low debt burden. Virginia benefits from its proximity to
the nations capital and its employment base remains substantially tied to
government and defense-related industries (25% of the Commonwealth's
earning are derived from government versus a 16% average for the U.S.).
Although defense cutbacks and base closings have left Virginia relatively
unscathed in recent years, the potential for future closings and cutbacks
remains alive; consequently, Virginia's legislators have been budgeting
conservative growth in the future and have implemented spending restraints.
To counter the contracting defense/government related declines, the
Commonwealth is actively seeking economic diversification, focusing
particularly on high technology, trade, and tourism. Virginia's pro-
business environment has attracted many high technology firms.
Virginia remains a conservative debt issuer and maintains debt levels that
are low in relation to its substantial resources. The Commonwealth actively
manages its debt position and continually demonstrates its ability and
willingness to adjust financial planning and budgeting to preserve
financial balance. In 1991, the Commonwealth established a Debt Capacity
Advisory Committee which annually estimates the amount of tax-supported
debt that the Commonwealth can prudently authorize, issue, and support. The
Commonwealth and the Committee have decided that the ratio of debt service
to revenues should be maintained below 5%, and the Commonwealth has
actually kept the level at or below 2.5%.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the Commonwealth or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the Commonwealth; and the underlying
fiscal condition of the Commonwealth and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15%
of the value of its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued Virginia municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies, limitations and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
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 would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, 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 certain restricted securities not determined
to be liquid under criteria established by the Trustees, and repurchase
agreements providing for settlement in more than seven days after notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. 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 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, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat `N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
oThis Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Shares of Virginia Municipal Cash
Trust: Chesnat, Kilmarnock, Virginia, owned approximately 1,291,121 shares
(5.74%); First Community Bank, Bluefield, West Virginia, owned
approximately 1,367,700 shares (6.08%); FirstBlue & Company, Bluefield,
West Virginia, owned approximately 1,572,003 shares (6.99%); Nabaf &
Company, Fredericksburg, Virginia, owned approximately 2,092,247 shares
(9.30%); VATCO, Richland, Virginia, owned approximately 2,114,938 shares
(9.40%); Hamac & Co., Richmond, Virginia, owned approximately 3,684,166
shares (16.38%); and Comfort & Co., Hampton, Virginia, owned approximately
6,735,750 shares (29.94%).
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Service Shares of Virginia Municipal
Cash Trust: WC English, Inc., Lynchburg, Virginia, owned approximately
12,215,000 shares (5.78%); and Scott & Stringfellow, Inc., Richmond,
Virginia,owned approximately 25,542,669 shares (12.08%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996 and 1995, the adviser earned $657,332, and
$514,947, respectively, of which $243,090 and $224,073, respectively, were
voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services, Inc. may
hereinafter collectively be referred to as the `Administrators.'' For the
fiscal years ended October 31, 1996, 1995, and 1994, the Administrators
earned $155,000, $155,000, and $145,109, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal period ended October 31, 1996, the Fund paid shareholder
service fees in the amounts of $59,623 and $351,209, on behalf of
Institutional Shares and Institutional Service Shares, respectively, of
which $59,623 and $210,725, respectively were voluntarily waived.
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 .50% 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.
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.
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, 1996, the yields for
Institutional Shares and Institutional Service Shares were 3.19% and 3.09%,
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, 1996, the effective yields for
Institutional Shares and Institutional Service Shares were 3.24% and 3.14%,
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 45.35% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yields
for Institutional Shares and Institutional Service Shares were 5.84% and
5.65%, 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 1996
STATE OF VIRGINIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.75% 33.75% 36.75% 41.75% 45.35%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
3.50% 4.42% 5.28% 5.53% 6.01% 6.40%
4.00% 5.05% 6.04% 6.32% 6.87% 7.32%
4.50% 5.68% 6.79% 7.11% 7.73% 8.23%
5.00% 6.31% 7.55% 7.91% 8.58% 9.15%
5.50% 6.94% 8.30% 8.70% 9.44% 10.06%
6.00% 7.57% 9.06% 9.49% 10.30% 10.98%
6.50% 8.20% 9.81% 10.28% 11.16% 11.89%
7.00% 8.83% 10.57% 11.07% 12.02% 12.81%
7.50% 9.46% 11.32% 11.86% 12.88% 13.72%
8.00% 10.09% 12.08% 12.65% 13.73% 14.64%
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.
o 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.
For the one-year period ended October 31, 1996, and for the period from
September 16, 1993 (date of initial public investment) through October 31,
1996, the average annual total returns were 3.11% and 3.56%, respectively,
for Institutional Shares, and were 3.14% and 3.00%, respectively, for
Institutional Service Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide-including 200 New York Stock Exchange firms-supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
ALABAMA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
PROSPECTUS
The Shares of Alabama Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Alabama municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Alabama, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and income tax imposed by the State of Alabama consistent
with stability of principal.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Alabama Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 28
- ------------------------------------------------------
ADDRESSES 29
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)...................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.17%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.42%
Shareholder Services Fee................................................ 0.25%
Total Operating Expenses(2)........................................ 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The Total Operating Expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1997. The Total Operating
Expenses were 0.55% for fiscal year ended October 31, 1996 and would have been
.92% absent the voluntary waiver of a portion of the management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Fund Information". Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period........... $6 $19 $33 $ 74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
ALABAMA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1996 1995 1994(a)
-------- -------- --------
<S> <C> <C> <C>
- ---------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.03 0.04 0.02
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.03) (0.04) (0.02)
- --------------------------------------------------------------- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- --------------------------------------------------------------- ----- ----- -----
TOTAL RETURN (b) 3.22% 3.66% 2.31%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.55% 0.48% 0.36%*
- ---------------------------------------------------------------
Net investment income 3.18% 3.59% 2.67%*
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 0.37% 0.44% 0.62%*
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $233,720 $209,490 $142,804
- ---------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 3, 1993 (date of initial
public investment) to October 31, 1994. For the period from November 29,
1993 (start of business) to December 3, 1993 the Fund had no investment
activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989 The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term municipal securities.
The Fund may not be a suitable investment for retirement plans or for
non-Alabama taxpayers because it invests in municipal securities of that state.
A minimum initial investment of $10,000 over 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
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the State of Alabama 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 complying with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds and by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 income tax imposed by the
State of Alabama. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 Alabama and its political subdivisions and financing
authorities, and obligations of other states, territories, and possessions of
the United States, including the District of Columbia, and any political
subdivision or financing authority of any of these, the income from which is, in
the opinion of qualified legal counsel, exempt from federal regular income tax
and the income tax imposed by the State of Alabama ("Alabama Municipal
Securities"). Examples of Alabama Municipal Securities include, but are not
limited to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 Alabama
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Alabama 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership, or default by the issuer of the demand feature, or a default on
the underlying security or other event that terminates the demand feature before
its exercise, will adversely affect the liquidity of the underlying security.
Demand features that are exercisable even after a payment default on the
underlying security may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. 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, together with other illiquid securities, 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, all of comparable quality
to other securities in which the Fund invests, 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 depository institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Alabama
Municipal Securities is subject to the federal alternative minimum tax.
ALABAMA MUNICIPAL SECURITIES
Alabama Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Alabama Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Alabama 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 Alabama 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 Alabama 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 Alabama
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Alabama 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
Alabama 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 Alabama 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. Due to these risk considerations, the
Fund's concentration in Alabama Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its net assets and pledge assets not exceeding 15% of
the value of its total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of shares, computed at an annual rate, to obtain certain
personal services for shareholders and to maintain shareholder accounts. From
time to time and for such periods as deemed appropriate, the amount stated above
may be reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Alabama Municipal Cash
Trust; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made
payable to: Alabama Municipal Cash Trust. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Shareholder Services Company
receives the redemption request. According to the shareholder's instructions,
redemption proceeds can be sent to the financial institution or to the
shareholder by check or by wire. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Under limited circumstances,
arrangements may be made with the distributor for same-day payment of proceeds,
without that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through ACH
will not be wired until that method of payment has cleared. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any
time the Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$10,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of each portfolio in the Trust have equal
voting rights; except that in matters affecting only a particular portfolio,
only shareholders of that portfolio are entitled to vote. 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
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
Alabama. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
ALABAMA TAXES. Under existing Alabama laws, distributions made by the Fund will
not be subject to Alabama personal income taxes to the extent that such
distributions are attributable to interest earned on obligations that would be
exempt from Alabama personal income taxes if held directly by shareholders (such
as obligations of Alabama or its political subdivisions, of the United States or
of certain territories or possessions of the United States). Conversely, to the
extent that distributions made by the Fund are derived from other types of
obligations, such distributions will be subject to Alabama personal income
taxes.
Shareholders may exclude from the share value of the Fund, for purposes of the
Alabama personal property tax, that portion of the total share value which is
attributable to the value of the obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
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
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
ALABAMA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--100.0%
- --------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--90.6%
-----------------------------------------------------------------
$3,000,000 Alabama State IDA Weekly VRDNs (Columbus Mills Inc. Project)/ $ 3,000,000
(SunTrust Bank, Atlanta LOC)
-----------------------------------------------------------------
3,970,000 Alabama State IDA, IDRB (Series 1994) Weekly VRDNs 3,970,000
(Decatur Aluminum Corp.)/(Star Bank, NA, Cincinnati LOC)
-----------------------------------------------------------------
1,600,000 Alabama State IDA, IDRB Weekly VRDNs (Monarch Tile, Inc. 1,600,000
Project)/
(Nationsbank of Texas, N.A. LOC)
-----------------------------------------------------------------
3,250,000 Alabama State IDA, IDRB's (Series 1996) Weekly VRDNs 3,250,000
(IMI Cash Valve Project)/(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
3,350,000 Alabama State IDA, Industrial Revenue Bonds Weekly VRDNs 3,350,000
(Kappler USA, Inc. Project)/(National Bank of Canada, Montreal
LOC)
-----------------------------------------------------------------
5,600,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag 5,600,000
Corporation, Ltd.)/(SouthTrust Bank of Alabama, Birmingham LOC)
-----------------------------------------------------------------
1,245,000 Alabama State Public School & College Authority, Capital 1,245,000
Improvement Bonds (Series 1996), 4.50% Bonds, 11/1/1996
-----------------------------------------------------------------
1,100,000 Arab, AL IDB, Revenue Refunding Bonds (Series 1989) Weekly VRDNs 1,100,000
(SCI Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
-----------------------------------------------------------------
1,750,000 Ashland, AL IDB, (Series 1996) Weekly VRDNs 1,750,000
(Tru-Wood Cabinets)/(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
1,720,000 Ashland, AL IDB, Refunding Revenue Bonds (Series 1992) 1,720,000
Weekly VRDNs (Russell Corp.)/(SunTrust Bank, Atlanta LOC)
-----------------------------------------------------------------
2,000,000 Birmingham, AL IDA Weekly VRDNs (Altec Industries, Inc.)/ 2,000,000
(Wachovia Bank of Georgia NA, Atlanta LOC)
-----------------------------------------------------------------
1,715,000 Birmingham, AL IDA Weekly VRDNs (Glasforms, Inc.)/ 1,715,000
(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
2,525,000 Birmingham, AL IDA, Revenue Refunding Bonds Weekly VRDNs 2,525,000
(S.P. Hotel Company)/(Amsouth Bank N.A., Birmingham LOC)
-----------------------------------------------------------------
535,000 Birmingham, AL Waterworks & Sewer Board, Water and Sewer Revenue 535,000
Bonds (Series 1996), 3.40% Bonds, 1/1/1997
-----------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--CONTINUED
-----------------------------------------------------------------
$1,695,000 Calhoun County, AL Economic Development Council Weekly VRDNs $ 1,695,000
(Food Ingredients Tech. Co.)/(Nationsbank, N.A. LOC)
-----------------------------------------------------------------
4,230,000 Chatom, AL, (National Rural Utilities Series 1984M), 3.65% TOBs 4,230,000
(Alabama Electric Co-op, Inc.)/(National Rural Utilities
Cooperative Finance Corp. GTD), Optional Tender 2/15/1997
-----------------------------------------------------------------
3,000,000 Chatom, AL, IDB PCR, 3.70% CP (Alabama Electric Co-op, Inc.)/ 3,000,000
(National Rural Utilities Cooperative Finance Corp. GTD),
Mandatory Tender 2/14/1997
-----------------------------------------------------------------
6,200,000 Chatom, AL, IDB PCR, 3.80% CP (Alabama Electric Co-op, Inc.)/ 6,200,000
(National Rural Utilities Cooperative Finance Corp. GTD),
Mandatory Tender 1/16/1997
-----------------------------------------------------------------
2,200,000 Cullman, AL IDB, IRB's (Series 1992) Weekly VRDNs 2,200,000
(Pressac Holdings PLC)/(NBD Bank, Michigan LOC)
-----------------------------------------------------------------
3,000,000 Cullman, AL IDB, Variable Fixed Rate IDRB Weekly VRDNs 3,000,000
(National Bedding Company)/(Bank of America Illinois LOC)
-----------------------------------------------------------------
3,000,000 Decatur, AL IDB, Revenue Refunding Bonds (Series 1993) 3,000,000
Weekly VRDNs (Allied-Signal, Inc.)
-----------------------------------------------------------------
8,000,000 Decatur, AL IDB, Solid Waste Disposal Revenue Bonds (Series 1996) 8,000,000
Weekly VRDNs (Trico Steel Company, L.L.C. Project)/
(Chase Manhattan Bank N.A., New York LOC)
-----------------------------------------------------------------
2,200,000 Eutaw, AL IDB Weekly VRDNs (Mississippi Power Co.)/ 2,200,000
(Mississippi Power Co. GTD)
-----------------------------------------------------------------
3,400,000 Fairfield, AL IDA, Variable Rate Environmental Improvement 3,400,000
Revenue Bonds (Series 1995), 3.65% TOBs (USX Corp.)/(Wachovia
Bank of NC, NA, Winston-Salem LOC), Optional Tender 11/1/1996
-----------------------------------------------------------------
1,595,000 Fort Payne, AL IDB, IDRB Weekly VRDNs (Ovalstrapping, Inc.)/ 1,595,000
(U.S. Bank of Washington NA LOC)
-----------------------------------------------------------------
5,900,000 Geneva County, AL IDB, Adjustable Fixed Rate IDRB's (Series 1996) 5,900,000
Weekly VRDNs (Brooks AG Co., Inc.)/
(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--CONTINUED
-----------------------------------------------------------------
$4,000,000 Guntersville, AL IDB, (Series 1995) Weekly VRDNs (Hercules Rubber $ 4,000,000
Co. Project)/(SouthTrust Bank of Alabama, Birmingham LOC)
-----------------------------------------------------------------
3,915,000 Hoover, AL IDA Weekly VRDNs (Bud's Best Cookies, Inc.)/ 3,915,000
(SouthTrust Bank of Alabama, Birmingham LOC)
-----------------------------------------------------------------
235,000 Huntsville, AL IDA Weekly VRDNs (Parkway Project (Huntsville, 235,000
AL))/
(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
1,910,000 Huntsville, AL, Warrants (Series A), 4.75% Bonds, 11/1/1997 1,926,606
-----------------------------------------------------------------
1,555,000 Ider, AL IDB, Industrial Development Bonds Weekly VRDNs 1,555,000
(Galbreath, Inc. Proj.)/(National Bank of Canada, Montreal LOC)
-----------------------------------------------------------------
7,200,000 Jefferson County, AL, GO Warrants (Series 1996) Weekly VRDNs 7,200,000
(Bayerische Landesbank Girozentrale LOC)
-----------------------------------------------------------------
1,900,000 Livingston, AL IDB, Floating/Fixed Rate IDRB's (Series 1989) 1,900,000
Weekly VRDNs (Toin Corporation U.S.A.)/
(Industrial Bank of Japan Ltd., Tokyo LOC)
-----------------------------------------------------------------
3,500,000 Lowndes County, AL IDB, (Series 1996) Weekly VRDNs 3,500,000
(Warren Oil Company Project)/
(First Union National Bank, Charlotte, NC LOC)
-----------------------------------------------------------------
2,540,000 Madison, AL IDA, (Series A) Weekly VRDNs (Executive Inn)/ 2,540,000
(Amsouth Bank N.A., Birmingham LOC)
-----------------------------------------------------------------
1,425,000 Marshall County, AL, Special Obligation School Refunding Warrant 1,425,000
(Series 1994) Weekly VRDNs (Marshall County, AL Board of
Education)/(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
885,000 Mobile County, AL Board of School Commissioners, Capital Outlay 888,965
Warrants (Series 1996), 4.75% Bonds (AMBAC INS), 3/1/1997
-----------------------------------------------------------------
1,200,000 Mobile, AL Board of Water and Sewer Commissioners, Subordinate 1,208,167
Special Obligation Revenue Bonds (Series A), 7.90% Bonds,
1/1/1997
-----------------------------------------------------------------
2,540,000 Mobile, AL Downtown Redevelopment Authority, (Series 1992) Weekly 2,540,000
VRDNs (Mitchell Project)/(SunTrust Bank, Atlanta LOC)
-----------------------------------------------------------------
3,000,000 Mobile, AL IDB, (1994 Series A), 3.75% TOBs (International Paper 3,000,000
Co.),
Optional Tender 12/1/1996
-----------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--CONTINUED
-----------------------------------------------------------------
$3,500,000 Mobile, AL IDB, PCR (Series 1993A) Weekly VRDNs $ 3,500,000
(Alabama Power Co.)/(Alabama Power Co. GTD)
-----------------------------------------------------------------
9,250,000 Mobile, AL IDB, PCR (Series 1993B) Weekly VRDNs 9,250,000
(Alabama Power Co.)/(Alabama Power Co. GTD)
-----------------------------------------------------------------
1,000,000 Mobile, AL IDB, Pollution Control Refunding Revenue Bonds, 1,000,000
(Series 1992) Weekly VRDNs (Air Products & Chemicals, Inc.)/
(Air Products & Chemicals, Inc. GTD)
-----------------------------------------------------------------
1,560,000 Mobile, AL, 3.95% Bonds (AMBAC INS), 2/15/1997 1,560,921
-----------------------------------------------------------------
3,000,000 Montgomery -- Wynlakes Governmental Utility Services Corp., Bonds 3,000,000
(Series 1995-A) Weekly VRDNs (Vaughn Road, L.L.C., Project)/
(Amsouth Bank N.A., Birmingham LOC)
-----------------------------------------------------------------
800,000 Montgomery, AL IDB, (Series 1988A) Weekly VRDNs 800,000
(Smith Industries)/(SunTrust Bank, Atlanta LOC)
-----------------------------------------------------------------
2,665,000 Montgomery, AL IDB, (Series 1990-A) Weekly VRDNs 2,665,000
(Industrial Partners)/(Wachovia Bank of Georgia NA, Atlanta LOC)
-----------------------------------------------------------------
3,000,000 Montgomery, AL IDB, IDRB's (Series 1996) Weekly VRDNs 3,000,000
(CSC Fabrication, Inc. Project)/(First Union National Bank,
Charlotte, NC LOC)
-----------------------------------------------------------------
3,650,000 Montgomery, AL IDB, Industrial Development Revenue Bonds 3,650,000
(Series 1996A) Weekly VRDNs (Jobs Company, L.L.C. Project)/
(Columbus Bank and Trust Co., GA LOC)
-----------------------------------------------------------------
500,000 Mountain Brook, AL, GO Warrants (Series 1996), 500,000
3.20% Bonds, 12/1/1996
-----------------------------------------------------------------
5,500,000 Phoenix City, AL IDB, (Series 1988), 3.60% CP (Mead Coated 5,500,000
Board)/
(ABN AMRO Bank N.V., Amsterdam LOC),
Mandatory Tender 11/21/1996
-----------------------------------------------------------------
3,000,000 Phoenix City, AL IDB, (Series 1988), 3.63% CP (Mead Coated 3,000,000
Board)/
(ABN AMRO Bank N.V., Amsterdam LOC),
Mandatory Tender 1/13/1997
-----------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--CONTINUED
-----------------------------------------------------------------
$4,000,000 Phoenix City, AL IDB, (Series 1988), 3.65% CP (Mead Coated $ 4,000,000
Board)/
(ABN AMRO Bank N.V., Amsterdam LOC),
Mandatory Tender 11/27/1996
-----------------------------------------------------------------
890,000 Piedmont, AL IDB Weekly VRDNs (Industrial Partners)/ 890,000
(Wachovia Bank of Georgia NA, Atlanta LOC)
-----------------------------------------------------------------
2,500,000 Prattville, AL IDB, IDR Bonds Weekly VRDNs 2,500,000
(Kuhnash Properties/Arkay Plastics Project)/
(PNC Bank, Ohio, N.A. LOC)
-----------------------------------------------------------------
3,600,000 Scottsboro, AL IDB, (Series 1994) Weekly VRDNs 3,600,000
(Maples Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC)
-----------------------------------------------------------------
1,500,000 Scottsboro, AL IDB, IDRB (Series 1991) Weekly VRDNs 1,500,000
(Maples Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC)
-----------------------------------------------------------------
5,000,000 Selma, AL IDB, Annual Tender PCR Refunding Bonds (1993 Series B), 5,000,000
4.15% TOBs (International Paper Co.), Optional Tender 7/15/1997
-----------------------------------------------------------------
7,575,000 St. Clair County, AL IDB, (Series 1993) Weekly VRDNs (Ebsco 7,575,000
Industries, Inc.)/(National Australia Bank, Ltd., Melbourne LOC)
-----------------------------------------------------------------
4,000,000 Stevenson, AL IDB Daily VRDNs (Mead Corp.)/ 4,000,000
(Societe Generale, Paris LOC)
-----------------------------------------------------------------
4,500,000 Stevenson, AL IDB, Industrial Revenue Bonds (Series 1996-A) 4,500,000
Weekly VRDNs (Unitog Co.)/(UMB Bank, N.A. LOC)
-----------------------------------------------------------------
5,800,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995A) 5,800,000
Weekly VRDNs (Fulghum Fibres Project (AL))/
(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
1,200,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995B) 1,200,000
Weekly VRDNs (Canal Chip Project)/
(First Alabama Bank, Birmingham LOC)
-----------------------------------------------------------------
795,000 Sylacuaga, AL IDB Monthly VRDNs 795,000
(SouthTrust Bank of Alabama, Birmingham LOC)
-----------------------------------------------------------------
3,000,000 Troy, AL IDB, IRB's (Series 1996A) Weekly VRDNs (Hudson Sauces & 3,000,000
Dressings, Inc. )/(Amsouth Bank N.A., Birmingham LOC)
-----------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--CONTINUED
-----------------------------------------------------------------
$ 405,000 Tuscaloosa County, AL Port Authority, (Series 1989A) Weekly VRDNs $ 405,000
(Capstone Hotel Ltd.)/(SouthTrust Bank of Alabama, Birmingham
LOC)
-----------------------------------------------------------------
2,000,000 Tuscaloosa County, AL, GO Warrants (Series 1996), 3.55% Bonds, 2,000,000
1/1/1997
-----------------------------------------------------------------
2,000,000 Tuskegee, AL IDB, IDRB (Series 1995) Weekly VRDNs 2,000,000
(Concrete Company)/(Columbus Bank and Trust Co., GA LOC)
-----------------------------------------------------------------
1,185,000 University of South Alabama, University Tuition Revenue 1,185,000
Refunding Bonds (Series 1996B), 3.80% Bonds
(MBIA Insurance Corporation INS), 11/15/1997
-----------------------------------------------------------------
5,425,000 Vincent, AL IDB Weekly VRDNs (Headquarters Partnership Project)/ 5,425,000
(National Australia Bank, Ltd., Melbourne LOC)
-----------------------------------------------------------------
2,400,000 Vincent, AL IDB, (Series 1993) Weekly VRDNs (Ebsco Industries, 2,400,000
Inc.)/
(National Australia Bank, Ltd., Melbourne LOC)
-----------------------------------------------------------------
2,900,000 Winfield, AL, Variable/Fixed Rate IRB's(Series 1984) Weekly VRDNs 2,900,000
(Union Underwear Company, Inc.)/(Bank of Nova Scotia, Toronto
LOC)
----------------------------------------------------------------- ------------
Total 211,714,659
----------------------------------------------------------------- ------------
PUERTO RICO--9.4%
-----------------------------------------------------------------
2,050,000 Puerto Rico Electric Power Authority, (Series K), 9.25% Bonds 2,161,632
(United States Treasury PRF), 7/1/1997 (@102)
-----------------------------------------------------------------
3,500,000 Puerto Rico Electric Power Authority, (Series K), 9.375% Bonds 3,697,028
(United States Treasury PRF), 7/1/1997 (@102)
-----------------------------------------------------------------
5,000,000 Puerto Rico Government Development Bank, 3.65% CP, 5,000,000
Mandatory Tender 2/14/1997
-----------------------------------------------------------------
1,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1,000,000
1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC), Optional Tender 9/1/1997
-----------------------------------------------------------------
4,000,000 Puerto Rico Industrial, Tourist, Education, Medical & 4,000,000
Environmental Control Finance Authority, (Series 1994A), 3.80% CP
(Inter American University of Puerto Rico)/(Banque Paribas, Paris
LOC), Mandatory Tender 1/13/1997
-----------------------------------------------------------------
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
(a)SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
<C> <S> <C>
PUERTO RICO--9.4%
-----------------------------------------------------------------
$5,100,000 Puerto Rico Industrial, Tourist, Education, Medical & $ 5,100,000
Environmental Control Finance Authority, (Series 1994A), 3.80% CP
(Inter American University of Puerto Rico)/(Banque Paribas, Paris
LOC), Mandatory Tender 12/9/1996
-----------------------------------------------------------------
1,000,000 Puerto Rico Public Building Authority, Series H, 7.875% Bonds 1,046,410
(United States Treasury PRF), 7/1/1997 (@102)
----------------------------------------------------------------- ------------
Total 22,005,070
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $233,719,729
----------------------------------------------------------------- ------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 52.3% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
securitiy rated by multiple NRSROs in different rating categories should be
identified as a First or Second Tier security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
First Tier Second Tier
96.6% 3.4%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($233,720,146) at October 31, 1996.
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following acronym(s) are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
CP --Commercial Paper
GO --General Obligation
GTD --Guaranty
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDRB --Industrial Development Revenue Bond
INS --Insured
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PCA --Pollution Control Authority
PCR --Pollution Control Revenue
PLC --Public Limited Company
PRF --Prerefunded
TOBs --Tender Option Bonds
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $233,719,729
- --------------------------------------------------------------------------------
Cash 171,371
- --------------------------------------------------------------------------------
Income receivable 1,346,418
- --------------------------------------------------------------------------------
Receivable for shares sold 1,224
- --------------------------------------------------------------------------------
Deferred expenses 24,493
- -------------------------------------------------------------------------------- ------------
Total assets 235,263,235
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $1,188,377
- -------------------------------------------------------------------
Payable for shares redeemed 67,030
- -------------------------------------------------------------------
Income distribution payable 219,891
- -------------------------------------------------------------------
Accrued expenses 67,791
- ------------------------------------------------------------------- ----------
Total liabilities 1,543,089
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 233,720,146 shares outstanding $233,720,146
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
$233,720,146 / 233,720,146 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest $7,837,454
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $1,049,210
- ----------------------------------------------------------------------
Administrative personnel and services fee 158,659
- ----------------------------------------------------------------------
Custodian fees 33,790
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 29,294
- ----------------------------------------------------------------------
Directors'/Trustees' fees 2,675
- ----------------------------------------------------------------------
Auditing fees 11,156
- ----------------------------------------------------------------------
Legal fees 4,073
- ----------------------------------------------------------------------
Portfolio accounting fees 56,451
- ----------------------------------------------------------------------
Shareholder services fee 524,605
- ----------------------------------------------------------------------
Share registration costs 32,587
- ----------------------------------------------------------------------
Printing and postage 12,675
- ----------------------------------------------------------------------
Insurance premiums 4,183
- ----------------------------------------------------------------------
Miscellaneous 12,837
- ---------------------------------------------------------------------- ----------
Total expenses 1,932,195
- ----------------------------------------------------------------------
Waivers --
- ----------------------------------------------------------------------
Waiver of investment advisory fee $(692,887)
- ----------------------------------------------------------
Waiver of shareholder services fee (76,089)
- ---------------------------------------------------------- ---------
Total waivers (768,976)
- ---------------------------------------------------------------------- ----------
Net expenses 1,163,219
- ------------------------------------------------------------------------------------ ----------
Net investment income $6,674,235
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------
Net investment income $ 6,674,235 $ 5,893,328
- --------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------
Distributions from net investment income (6,674,235) (5,893,328)
- ---------------------------------------------------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------
Proceeds from sale of shares 712,795,816 826,956,278
- ---------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 3,730,255 2,071,166
- ---------------------------------------------------------
Cost of shares redeemed (692,296,354) (762,340,876)
- --------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions 24,229,717 66,686,568
- --------------------------------------------------------- ---------------- ----------------
Change in net assets 24,229,717 66,686,568
- ---------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------
Beginning of period 209,490,429 142,803,861
- --------------------------------------------------------- ---------------- ----------------
End of period $ 233,720,146 $ 209,490,429
- --------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Alabama Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the State of Alabama consistent with stability of
principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At October 30, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $5,068, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. The capital loss carryforward will expire in
the year 2004.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
October 31, 1996, capital paid-in aggregated $233,720,146.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1996 1995
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Shares sold 712,795,816 826,956,278
- ------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 3,730,255 2,071,166
- ------------------------------------------------------------------
Shares redeemed (692,296,354) (762,340,876)
- ------------------------------------------------------------------ ------------ ------------
Net change resulting from share transactions 24,229,717 66,686,568
- ------------------------------------------------------------------ ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to
ALABAMA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
maintain shareholder accounts. FSS may voluntarily choose to waive any portion
of its fee. FSS can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational and start-up administrative service
expenses of $57,711 were borne initially by the Adviser. The Fund has agreed to
reimburse the Adviser for the organizational and start-up administrative
expenses during the five year period following effective date. For the period
ended October 31, 1996, the Fund paid $12,153 pursuant to this agreement.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $416,741,000 and $399,722,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 87.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.1% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Alabama Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Alabama
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1996 and the related statement of operations for
the year then ended and the statement of changes in net assets and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alabama Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Alabama Municipal Cash Trust
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- -----------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- -----------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALABAMA MUNICIPAL
CASH TRUST
PROSPECTUS
A Portfolio of Federated Municipal
Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
LOGO
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
Cusip 3142229790
3090802A (12/96)
ALABAMA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Alabama Municipal Cash Trust (the ``Fund'), a portfolio
of Federated Municipal Trust (the ``Trust') dated December 31, 1996.
This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314229790
3090802B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
ALABAMA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 13
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to
be purchased are: segregated on the Fund`s records at the trade date;
marked to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at a time when
a sale may be deemed to be disadvantageous, but does not ensure this
result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained
until the transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
ALABAMA INVESTMENT RISKS
The State of Alabama has experienced some diversification of its economy
primarily centered around its metropolitan areas. Agriculture, dominant
prior to World War II has given way to the manufacturing of textiles,
chemicals, paper, and metals. Manufacturing comprises roughly 23% of
Alabama's non-agricultural employment, slightly above the rest of the US.,
and continues to remain strong as evidenced by Mercedes-Benz's decision to
locate a plant in Alabama. Other major non-agricultural sectors include
government (20%); wholesale and retail trade (22%); and services,
including finance, insurance, and real estate (24%). Over the last decade,
the economy has further diversified with the addition of high-tech firms
to the Huntsville area and healthcare services to the Birmingham area.
During the 1982 recession Alabama's unemployment rate climbed into double
digits. The recent recession, however, has not been as severe to the
Alabama economy. The state's unemployment rate has reflected national
trends (4.7% as of September 1996). However the North American Free Trade
Agreement leaves Alabama exposed to potential job losses in some
traditional industries as Mexico offers a lower-cost environment.
Alabama's overall debt structure is more complex than most states, due to
its many issuing authorities. Roughly 60% of Alabama's debts are special
or limited tax obligations, payable from designated sources. Debt service
as a percentage of budget revenues is currently 4.8%, which is above
average for the nation. However, since Alabama generally taxes and spends
less than most states, debt service appears as a larger part of its
revenue in relation to other states. Debt service on a per capita basis is
moderate. The state has a strong balanced budget act that allows spending
only from moneys on hand. The governor has the ability to prorate budgeted
expenditures during the fiscal year in order to balance the budget. This
proration ability has been challenged in court, and the outcome may
adversely affect the mechanism by which the budget is balanced.
Furthermore, Alabama's school funding has been challenged; resolution of
this matter may affect the state budget.
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 upon 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 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 may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued Alabama municipal securities or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, limitations, and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
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 would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, 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 certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director
or Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University, U.S. Space
Foundation and Czech Management Center; President Emeritus, University of
Pittsburgh; Founding Chairman, National Advisory Council for Environmental
Policy and Technology, Federal Emergency Management Advisory Board and
Czech Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport
Research, Ltd.; Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee
or Director of some of the Funds; President, Executive Vice President and
Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes
the following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated
Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income
Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-
10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s
outstanding shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Alabama Municipal Cash Trust: Hubco
owned approximately 41,923,196 shares (16.07%); Lynspen & Co. owned
approximately 32,212,242 shares (12.34%); EBSCO Investment Services, Inc.
owned approximately 14,360,147 shares (5.50%); EBSCO Industries, Inc.
owned approximately 20,748,534 shares (7.95%); Locust Mountain Partners
owned approximately 14,492,073 shares (5.55%); and NBC Securities, Inc.
owned approximately 15,390,497 shares (5.90%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised
of 16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996, 1995, and for the period from December 3,
1993 (date of initial public investment to October 31, 1994, the adviser
earned $1,049,210, $820,528, and $243,579, respectively, of which
$692,887, $606,516, and $243,579, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Fund or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses. The adviser and its
affiliates exercise reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and for the period from December 3, 1993 (date of initial public
investment to October 31, 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the
type the Fund may make may also be made by those other accounts. When the
Fund and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described
in the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the `Administrators.'' For the fiscal years ended October
31, 1996, 1995, and for the period from December 3, 1993 (date of initial
public investment to October 31, 1994, the Administrators earned $158,659,
$131,658, and $52,411, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee
based on size, type, and number of accounts and transactions made by
shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will
benefit by: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts. For the fiscal year ending October 31, 1996, the Fund paid
Shareholder Services fees in the amount of $524,605, of which $76,089 was
waived.
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.
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.
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.
The Fund's yield for the seven-day period ended October 31, 1996, was
3.20%.
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. The Fund's effective
yield for the seven-day period ended October 31, 1996, was 3.25%.
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 44.60% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
The Fund's tax-equivalent yield for the seven-day period ended October 31,
1996, was 5.78%.
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 1996
STATE OF ALABAMA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.00% 33.00% 36.00% 41.00% 44.60%
JOINT $1 - $40,101 - $96,901 - $147,701 OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1 - $24,001 - $58,151 - $121,301 - OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD
EQUIVALENT
----------------------------
2.50% 3.13% 3.73% 3.91% 4.24% 4.51%
3.00% 3.75% 4.48% 4.69% 5.08% 5.42%
3.50% 4.38% 5.22% 5.47% 5.93% 6.32%
4.00% 5.00% 5.97% 6.25% 6.78% 7.22%
4.50% 5.63% 6.72% 7.03% 7.63% 8.12%
5.00% 6.25% 7.46% 7.81% 8.47% 9.03%
5.50% 6.88% 8.21% 8.59% 9.32% 9.93%
6.00% 7.50% 8.96% 9.38% 10.17% 10.83%
6.50% 8.13% 9.70% 10.16% 11.02% 11.73%
7.00% 8.75% 10.45% 10.94% 11.86% 12.64%
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.
The Fund's average annual total returns for the one-year period ended
October 31, 1996 and for the period from December 3, 1993 (date of initial
public investment) through October 31, 1996 were 3.22% and 3.16%,
respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.
Advertising and other promotional literature may include charts, graphs
and other illustrations using the Fund`s returns, or returns in general,
that demonstrate basic investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment. In addition,
the Fund can compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, such as
bank savings accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money
market fund shares. Other innovations include the first institutional tax-
free money market fund. As of December 31, 1995, Federated Investors
managed more than $40.2 billion in assets across approximately 47 money
market funds, including 17 government, 10 prime and 20 municipal with
assets approximating $20.9 billion, $11.5 billion and $7.8 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their
clients' portfolios. The marketing effort to trust clients is headed by
Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement.. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1.
(The definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign
(+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by
the use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree
of risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with
the demand feature. The VMIG rating can be assigned a 1 or 2 designation
using the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well
established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of
fixed financial charges and high internal cash generation, well-
established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
AAA securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than
issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
NORTH CAROLINA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
PROSPECTUS
The shares of North Carolina Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term North Carolina municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of North Carolina, or its political subdivisions
and financing authorities, but which provide income exempt from federal regular
income tax and the income tax imposed by the State of North Carolina consistent
with stability of principal.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
North Carolina Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27
- ------------------------------------------------------
ADDRESSES 28
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)..................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)............................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1)......................................................................... 0.08%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.51%
Shareholder Services Fee....................................................................... 0.25%
Total Fund Operating Expenses (2).................................................................... 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The total operating expenses would have been 1.01% absent the voluntary
waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FUND INFORMATION". Wire--transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............. $6 $19 $33 $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
NORTH CAROLINA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994(a)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.03 0.04 0.02
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.04) (0.02)
- ----------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (b) 3.23% 3.51% 2.06%
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 0.59% 0.59% 0.49%*
- -----------------------------------------------------------------------------
Net investment income 3.17% 3.46% 2.54%*
- -----------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.42% 0.40% 0.44%*
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $137,749 $97,602 $85,249
- -----------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 31, 1993 (date of initial
public investment) to October 31, 1994. For the period from November 29,
1993 (start of business) to December 31, 1993, the Fund had no investment
activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing primarily in short-term North
Carolina municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-North Carolina taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $10,000 over
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
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the State of North Carolina
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 complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 and North Carolina state income tax
or at least 80% of its net assets will be invested in obligations, the interest
income from which is exempt from federal regular and North Carolina state income
tax. (Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 North Carolina and its political
subdivisions and financing authorities, and obligations of other states,
territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is,
in the opinion of qualified legal counsel, exempt from federal regular income
tax and North Carolina income tax ("North Carolina
Municipal Securities"). Examples of North Carolina Municipal Securities
include, but are not limited to:
tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
bond anticipation notes 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 North
Carolina--Municipal Securities from financial institutions such as
commercial and investment banks, savings 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 North
Carolina 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. 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, together with other illiquid securities, 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, all of comparable quality to other
securities in which the Fund invests, 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 depository institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain North Carolina
Municipal Securities is subject to the federal alternative minimum tax.
NORTH CAROLINA MUNICIPAL SECURITIES
North Carolina Municipal Securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
North Carolina Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of North Carolina 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 North Carolina 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 North Carolina 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
North Carolina Municipal Securities acceptable for purchase by the Fund could
become limited.
The Fund may invest in North Carolina 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 North Carolina 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 North Carolina 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.
Due to these risk considerations, the Fund's concentration in North Carolina
Municipal Securities may entail a greater level of risk than other types of
money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. These investment limitations cannot be
changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset value
of shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares
through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund
before 1:00 p.m. Eastern time to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
Eastern time that day. Federal funds should be wired as follows: Federated
Shareholder Services Company, c/o State Street Bank and Trust Company, Boston,
MA; Attention: EDGEWIRE; For Credit to: North Carolina Municipal Cash Trust;
Fund Number (this number can be found on the account statement or by contacting
the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: North Carolina Municipal Cash Trust. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Shareholder Services Company
receives the redemption request. According to the shareholder's instructions,
redemption proceeds can be sent to the financial institution or to the
shareholder by check or by wire. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization form.
These forms can be obtained from Federated Securities Corp. Proceeds from
redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds
from redemption requests received after that time include that day's dividend
but will be wired the following business day. Under limited circumstances,
arrangements may be made with the distributor for same-day payment of proceeds,
without that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through ACH
will not be wired until that method of payment has cleared.
Proceeds from redemption requests on holidays when wire transfers are restricted
will be wired the following business day. Questions about telephone redemptions
on days when wire transfers are restricted should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$10,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of each portfolio in the Trust have equal
voting rights; except that in matters affecting only a particular portfolio,
only shareholders of that portfolio are entitled to vote. 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
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of December 2, 1996, Stephens Inc., Little Rock, Arkansas, for the exclusive
benefit of their customers, owned 28.56% of the voting securities of the Fund,
and, therefore, may for certain purposes be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
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, within the limits of its investment policies, 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
North Carolina. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
NORTH CAROLINA TAXES. Under existing North Carolina laws, distributions made by
the Fund will not be subject to North Carolina income taxes to the extent that
such distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest on obligations of the state of North
Carolina or any of its political subdivisions; or (ii) interest on obligations
of the United States or its possessions. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will be subject to North Carolina income taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
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
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
NORTH CAROLINA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPAL SECURITIES--101.3%
- -------------------------------------------------------------------------------------------------
NORTH CAROLINA--89.4%
-----------------------------------------------------------------------------------
$ 1,755,000 Alamance County, NC Industrial Facilities & PCFA, (Series B) Weekly VRDNs (Culp,
Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) $ 1,755,000
-----------------------------------------------------------------------------------
1,200,000 Bladen County, NC Industrial Facilities & PCFA, (Series 1993)
Weekly VRDNs (BCH Energy, Limited Partnership)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 1,200,000
-----------------------------------------------------------------------------------
1,600,000 Buncombe County, NC Industrial Facilities & PCFA, (Series 1991) Weekly VRDNs (Rich
Mount, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,600,000
-----------------------------------------------------------------------------------
1,695,000 Burke County, NC Industrial Facilities & PFCA, Weekly VRDNs (Norwalk Furniture Corp
& Hickory Furniture)/(Branch Banking & Trust Co, Wilson LOC) 1,695,000
-----------------------------------------------------------------------------------
820,000 Catawba County, NC Industrial Facilities & PCFA, (Series 1992) Weekly VRDNs (WSMP,
Inc.)/(Nationsbank, N.A. LOC) 820,000
-----------------------------------------------------------------------------------
4,000,000 Catawba County, NC Industrial Facilities & PCFA, (Series 1994) Weekly VRDNs (Ethan
Allen Inc Project)/(Bankers Trust Co., New York LOC) 4,000,000
-----------------------------------------------------------------------------------
4,500,000 Charlotte, NC Airport , Refunding Revenue Bonds (Series 1993A) Weekly VRDNs (MBIA
INS)/(Commerzbank AG, Frankfurt LIQ) 4,500,000
-----------------------------------------------------------------------------------
2,435,000 Charlotte, NC, UT GO, 5.50% Bonds, 5/1/1997 2,457,312
-----------------------------------------------------------------------------------
3,615,000 Cleveland County, NC Industrial Facilities & PCFA, IDRB (Series 1990) Weekly VRDNs
(MetalsAmerica, Inc. Project)/(Nationsbank, N.A. LOC) 3,615,000
-----------------------------------------------------------------------------------
1,610,000 Cleveland County, NC Industrial Facilities & PCFA, Pollution Control Revenue Bonds
(Series 1995) Weekly VRDNs (Grover Industries, Inc. Project)/(Bank of America
Illinois LOC) 1,610,000
-----------------------------------------------------------------------------------
965,000 Davidson County, NC Industrial Facilities & PCFA, IDRB
(Series 1995) Weekly VRDNs (Lawrence Industries, Inc.
Project)/(Branch Banking & Trust Co, Wilson LOC) 965,000
-----------------------------------------------------------------------------------
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
NORTH CAROLINA--CONTINUED
-----------------------------------------------------------------------------------
$ 2,688,000 Enfield, NC, 4.00% BANs, 3/19/1997 $ 2,691,481
-----------------------------------------------------------------------------------
1,800,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1989) Weekly VRDNs
(Bonset America Corp.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo and Industrial Bank of
Japan Ltd., Tokyo LOCs) 1,800,000
-----------------------------------------------------------------------------------
3,000,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1989) Weekly VRDNs (Culp,
Inc.)/(Wachovia Bank of NC, NA,
Winston-Salem LOC) 3,000,000
-----------------------------------------------------------------------------------
8,125,000 Halifax County, NC Industrial Facilities & PCFA Weekly VRDNs (Flambeau Airmold
Project)/(Norwest Bank Minnesota,
Minneapolis LOC) 8,125,000
-----------------------------------------------------------------------------------
1,000,000 Iredell County, NC Industrial Facilities & PCFA, Industrial Revenue Bonds Weekly
VRDNs (Jet Corr, Inc. Project)/(National Bank of Canada, Montreal LOC) 1,000,000
-----------------------------------------------------------------------------------
1,000,000 Johnson County, NC Industrial Facilities & PCFA, (Series 1996) Weekly VRDNs (Inolex
Chemical Company Project)/(PNC Bank,
N.A. LOC) 1,000,000
-----------------------------------------------------------------------------------
2,000,000 Lee County, NC Industrial Facility & PCFA, (Series 1989) Weekly VRDNs (Avondale
Mills, Inc.)/(SunTrust Bank, Atlanta LOC) 2,000,000
-----------------------------------------------------------------------------------
2,600,000 Lincoln County, NC Industrial Facility & PCFA, Industrial Revenue Bonds Weekly
VRDNs (Leucadia, Inc Project)/(National Bank of Canada, Montreal LOC) 2,600,000
-----------------------------------------------------------------------------------
11,000,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs
(Weyerhaeuser Co.) 11,000,000
-----------------------------------------------------------------------------------
2,500,000 Mecklenberg County, NC Industrial Facilities and PCFA, (Series 1996) Weekly VRDNs
(SteriGenics International Project)/(Comerica Bank, Detroit, MI LOC) 2,500,000
-----------------------------------------------------------------------------------
2,000,000 Mecklenberg County, NC Industrial Facility & PCFA, Weekly VRDNs (Manhasset Bay
Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,000,000
-----------------------------------------------------------------------------------
1,000,000 Mecklenburg County, NC, (Series 1996) Weekly VRDNs
(YMCA of Greater Charlotte Project)/(Wachovia Bank of NC, NA,
Winston-Salem LOC) 1,000,000
-----------------------------------------------------------------------------------
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
NORTH CAROLINA--CONTINUED
-----------------------------------------------------------------------------------
$ 2,000,000 New Hanover County, NC PCFA Weekly VRDNs (Efson, Inc.)/(Branch Banking & Trust Co,
Wilson LOC) $ 2,000,000
-----------------------------------------------------------------------------------
6,000,000 New Hanover County, NC PCFA, (Series 1984) Weekly VRDNs (American Hoist & Derrick
Company Project)/(First Union National Bank, Charlotte, NC LOC) 6,000,000
-----------------------------------------------------------------------------------
1,445,000 New Hanover County, NC PCFA, (Series 1990) Weekly VRDNs (Wilmington Machinery Inc.
Project)/(Branch Banking & Trust Co, Wilson LOC) 1,445,000
-----------------------------------------------------------------------------------
3,000,000 North Carolina Agricultural Finance Authority, (Series 1996) Weekly VRDNs (Coastal
Carolina Gin L.L.C. Project)/(Branch Banking & Trust Co, Wilson LOC) 3,000,000
-----------------------------------------------------------------------------------
2,000,000 North Carolina Eastern Municipal Power Agency, Refunding Revenue Bonds (Series A),
7.50% Bonds (United States Treasury PRF),
1/1/1997 (@102) 2,053,403
-----------------------------------------------------------------------------------
500,000 North Carolina Medical Care Commission Hospital, Revenue Bonds (Series 1993) Weekly
VRDNs (Moses H. Cone Memorial) 500,000
-----------------------------------------------------------------------------------
4,000,000 North Carolina Municipal Power Agency No. 1, (Series A), 3.70% CP (Morgan Guaranty
Trust Co., New York and Union Bank of Switzerland, Zurich LOCs), Mandatory Tender
12/11/1996 4,000,000
-----------------------------------------------------------------------------------
4,000,000 Onslow County, NC Industrial Facilities & PCFA, Weekly VRDNs (Mine Safety
Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 4,000,000
-----------------------------------------------------------------------------------
3,280,000 Orange County, NC Industrial Facilities & PCFA, Weekly VRDNs (Mebane Packaging
Corp)/(First Union National Bank,
Charlotte, N.C. LOC) 3,280,000
-----------------------------------------------------------------------------------
1,300,000 Piedmont, NC Airport Authority Weekly VRDNs (Triad International Maintenance
Corp.)/(Mellon Bank NA, Pittsburgh LOC) 1,300,000
-----------------------------------------------------------------------------------
1,900,000 Randolph County, NC IDA, (Series 1990) Weekly VRDNs (Wayne Steel, Inc.)/(Bank One,
Akron, N.A. LOC) 1,900,000
-----------------------------------------------------------------------------------
5,000,000 Richmond County, NC Industrial Facilities & Pollution Control, (Series 1991) Weekly
VRDNs (Bibb Company)/(Citibank NA,
New York LOC) 5,000,000
-----------------------------------------------------------------------------------
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
NORTH CAROLINA--CONTINUED
-----------------------------------------------------------------------------------
$ 2,000,000 Rutherford County, NC, Industrial Facilities & PCFA, Weekly VRDNs (Spring-Ford
Knitting Co.)/(Branch Banking & Trust Co, Wilson LOC) $ 2,000,000
-----------------------------------------------------------------------------------
5,000,000 University of North Carolina, (Series 1989) Weekly VRDNs (University of North
Carolina at Chapel Hill General Alumni Association)/(Credit Suisse, Zurich LOC) 5,000,000
-----------------------------------------------------------------------------------
3,000,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990B), 3.75% CP (Carolina
Power & Light Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 12/17/1996 3,000,000
-----------------------------------------------------------------------------------
5,700,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990B), 3.80% CP (Carolina
Power & Light Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/12/1996 5,700,000
-----------------------------------------------------------------------------------
4,400,000 Wake County, NC, UT GO, 4.25% Bonds, 3/1/1997 4,417,098
-----------------------------------------------------------------------------------
1,900,000 Washington County, NC Industrial Facilities and Pollution Control Financing
Authority, IDRB (Series 1995) Weekly VRDNs (Mackeys Ferry Sawmill, Inc.
Project)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,900,000
-----------------------------------------------------------------------------------
3,777,150 Wayne County, NC PCFA Weekly VRDNs (Cooper Industries, Inc.)/ (Sanwa Bank Ltd,
Osaka LOC) 3,777,150
----------------------------------------------------------------------------------- --------------
Total 123,206,444
----------------------------------------------------------------------------------- --------------
PUERTO RICO--7.5%
-----------------------------------------------------------------------------------
3,000,000 Puerto Rico Electric Power Authority, (Series K), 9.375% Bonds (United States
Treasury PRF), 7/1/1997 (@102) 3,168,881
-----------------------------------------------------------------------------------
3,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.80% TOBs
(Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 3,000,000
-----------------------------------------------------------------------------------
4,200,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance
Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto
Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 4,200,000
----------------------------------------------------------------------------------- --------------
Total 10,368,881
----------------------------------------------------------------------------------- --------------
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------------------
VIRGIN ISLANDS--4.4%
-----------------------------------------------------------------------------------
$ 6,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B),
3.50% TOBs (Trinity Funding Company INV), Mandatory Tender 11/1/1996 $ 6,000,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS AT AMORTIZED COST (B) $ 139,575,325
----------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 45% of the
portfolio as calculated based upon total portfolio market value.
(a) The Trust may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NSRO's") or unrated securities of comparable quality. A
NRSO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities, rated SP-1+, SP-1
or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's
Investors Service, Inc., or FIN-1+, FIN-1 and FIN-2 by Fitch Investors
Service, Inc. are all considered rated in one of the two highest short-term
ratings categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security. At October 31, 1996, the portfolio securities were rated as
follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
100% 0%
</TABLE>
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($137,748,525) at October 31, 1996.
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
The following acronym(s) are used throughout this portfolio:
AMT--Alternative Minimum Tax
BANs--Bond Anticipation Notes
CP--Commercial Paper
GO--General Obligation
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDRB--Industrial Development Revenue Bond
IFA--Industrial Finance Authority
INS--Insured
INV--Investment Agreement
LIQ--Liquidity Agreement
LOCs--Letter(s) of Credit
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PCA--Pollution Control Authority
PCFA--Pollution Control Finance Authority
PRF--Prerefunded
TOBs--Tender Option Bonds
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 139,575,325
- -------------------------------------------------------------------------------------------------
Cash 346,865
- -------------------------------------------------------------------------------------------------
Income receivable 900,873
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 44,000
- -------------------------------------------------------------------------------------------------
Deferred expenses 24,556
- ------------------------------------------------------------------------------------------------- --------------
Total assets 140,891,619
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------
Payable for investments purchased $ 3,000,000
- -----------------------------------------------------------------------------------
Payable for shares redeemed 20,795
- -----------------------------------------------------------------------------------
Income distribution payable 54,001
- -----------------------------------------------------------------------------------
Accrued expenses 68,298
- ----------------------------------------------------------------------------------- ------------
Total liabilities 3,143,094
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 137,748,525 shares outstanding $ 137,748,525
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
$137,748,525 / 137,748,525 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 4,392,257
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee $ 582,818
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- --------------------------------------------------------------------------------------
Custodian fees 22,970
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,795
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,020
- --------------------------------------------------------------------------------------
Auditing fees 11,156
- --------------------------------------------------------------------------------------
Legal fees 4,398
- --------------------------------------------------------------------------------------
Portfolio accounting fees 41,569
- --------------------------------------------------------------------------------------
Shareholder services fee 291,409
- --------------------------------------------------------------------------------------
Share registration costs 36,805
- --------------------------------------------------------------------------------------
Printing and postage 12,355
- --------------------------------------------------------------------------------------
Insurance premiums 3,352
- --------------------------------------------------------------------------------------
Miscellaneous 13,895
- -------------------------------------------------------------------------------------- ------------
Total expenses 1,180,542
- --------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (487,687)
- -------------------------------------------------------------------------------------- ------------
Net expenses 692,855
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 3,699,402
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 3,699,402 $ 3,716,494
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income (3,699,402) (3,716,494)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 825,948,456 901,368,780
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 2,898,862 2,529,218
- -------------------------------------------------------------------------------
Cost of shares redeemed (788,700,740) (891,545,071)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 40,146,578 12,352,927
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets 40,146,578 12,352,927
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 97,601,947 85,249,020
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 137,748,525 $ 97,601,947
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NORTH CAROLINA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of North Carolina Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the State of North Carolina consistent with
stability of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
affect the amounts of assets, liabilities, expenses and revenues reported
in the financial statements. Actual results could differ from those
estimated.
OTHER--Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 825,948,456 901,368,780
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 2,898,862 2,529,218
- ----------------------------------------------------------------------------------
Shares redeemed (788,700,740) (891,545,071)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions 40,146,578 12,352,927
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
At October 31, 1996, capital paid-in aggregated $137,748,525.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Fund for the period. The
fee paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing
NORTH CAROLINA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
agent for the Fund. The fee paid to FSSC is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses and start-up
administrative service expenses of $53,386 were borne initially by the
Adviser. The Fund has agreed to reimburse the Adviser for the
organizational and start-up administrative expenses during the five year
period following effective date. For the period ended October 31, 1996, the
Fund paid $10,380 pursuant to this agreement.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Trust
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $428,065,000 and $378,920,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 81.2% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 7.9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(North Carolina Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities, of North
Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1996 and the related statement of operations for
the year then ended and the statement of changes in net assets and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of North
Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
- --------------------------------------------------------------------------------
North Carolina Municipal Cash Trust
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 Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- --------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- --------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL
CASH TRUST
PROSPECTUS
A Portfolio of Federated Municipal
Trust, an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[LOGO] FEDERATED SECURITIES CORP.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 314229782 [RECYCLED PAPER LOGO]
3090803A (12/96)
NORTH CAROLINA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of North Carolina Municipal Cash Trust (the ''Fund'), a
portfolio of Federated Municipal Trust (the ''Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314229782
3090803B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
SHAREHOLDER SERVICES AGREEMENT 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
NORTH CAROLINA INVESTMENT RISKS
The state of North Carolina's credit strength is derived from a diversified
and growing economy, relatively low unemployment rates, strong financial
management, and a low debt burden. In recent years, the state's economy has
become less dependent on agriculture (primarily tobacco) and manufacturing
(textiles and furniture) and has experienced increased activity in
financial services, research, high-tech manufacturing, and tourism.
Although by national standards North Carolina is not one of the wealthier
states (89% of national average), it is among the top in the Southeast
region and its growth in personal income continues to outstrip national
figures. The employment picture in North Carolina remains healthy with
unemployment rates significantly below national averages and employment
growth rates among the highest in the country.
North Carolina is a conservative debt issuer and has consistently
maintained extremely low debt levels. Such conservative levels are inherent
in the state's financial structure which contains constitutional debt
limits. The state's administration continues to demonstrate its ability and
willingness to adjust financial planning and budgeting to preserve
financial balance. When finances became tight during the recession of the
early 1990s, the state quickly responded to shortfalls by increasing its
sales and corporate tax rates and implementing expenditure reductions.
Since the recession, North Carolina has seen improving state finances and
has implemented a series of tax cuts while maintaining to fund capital and
budget reserve accounts. The finances of many of North Carolina's
municipalities are also very strong. This strength can be partially
attributed to the Local Government Commission of North Carolina which
serves as a central oversight and consulting group which must approve all
debt issued by state municipalities. It is interesting to note that over
25% of all Aaa-rated tax-exempt bonds issued nationwide are issued by local
municipalities within the state.
The Fund's concentration in securities issued by the state and its
political subdivisions provide a greater level of risk than a fund which is
diversified across a number of states and municipal entities. The ability
of the state or its municipalities to meet their obligations will depend on
the availability of tax and other revenues; economic, political, and
demographic conditions within the state; and the underlying fiscal
condition of the state, its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15%
of the value of its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or nonpublicly issued North Carolina municipal securities or
temporary investments or enter into repurchase agreements in accordance
with its investment objective, policies, limitations, and its Declaration
of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
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 would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, 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 certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days after notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, 'Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholder of record owned 5% or
more of the outstanding shares of the North Carolina Municipal Cash Trust:
Stephens Inc., Little Rock, Arkansas, for the exclusive benefit of their
customers, owned approximately 35,547,752 shares (28.56%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996 and 1995, and for the period November 29, 1993
(start of business) to October 31, 1994, the adviser earned $582,818,
$537,013, and $296,066, respectively, of which $487,687, $433,120, and
$261,597, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996 and 1995,
and for the period December 31, 1993 (date of initial public investment) to
October 31, 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996 and
1995, and for the period November 29, 1993 (start of business) to October
31, 1994, the Administrators earned $125,000, $125,000, and $52,447,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending October 31, 1996, the Fund paid Shareholder
Services fees in the amount of $291,409.
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.
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.
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.
The Fund's yield for the seven-day period ended October 31, 1996, was
3.05%.
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.
The Fund's effective yield for the seven-day period ended October 31, 1996,
was 3.09%.
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 47.35% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
The Fund's tax-equivalent yield for the seven-day period ended October 31,
1996, was 5.79%.
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 1996
STATE OF NORTH CAROLINA
COMBINED
FEDERAL
AND STATE:22.00% 35.00% 38.75% 43.75% 47.35%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
3.50% 4.49% 5.38% 5.71% 6.22% 6.65%
4.00% 5.13% 6.15% 6.53% 7.11% 7.60%
4.50% 5.77% 6.92% 7.35% 8.00% 8.55%
5.00% 6.41% 7.69% 8.16% 8.89% 9.50%
5.50% 7.05% 8.46% 9.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
6.50% 8.33% 10.00% 10.61% 11.56% 12.35%
7.00% 8.97% 10.77% 11.43% 12.44% 13.30%
7.50% 9.62% 11.54% 12.24% 13.33% 14.25%
8.00% 10.26% 12.31% 13.06% 14.22% 15.19%
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.
The Fund's average annual total returns for the one-year period ended
October 31, 1996, and for the period from December 31, 1993 (date of
initial public investment) through October 31, 1996, were 3.23% and 3.11%,
respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as 'gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
<.R>
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
MARYLAND MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
PROSPECTUS
The Shares of Maryland Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Maryland municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Maryland, or its political subdivisions and
financing authorities, but which provide income exempt from federal regular
income tax and the personal income taxes imposed by the State of Maryland and
Maryland municipalities consistent with stability of principal and liquidity.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Maryland Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 25
- ------------------------------------------------------
ADDRESSES 26
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)..................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)............................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)......................................................................... 0.00%
12b-1 Fee................................................................................................. None
Total Other Expenses (after expense reimbursement)........................................................ 0.65%
Shareholder Services Fee (after waiver) (2)............................................... 0.24%
Total Fund Operating Expenses (3)............................................................... 0.65%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 1.30% absent the voluntary
waiver of the management fee and the voluntary waiver of a portion of the
shareholder services fee and the voluntary reimbursement of certain other
operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FUND INFORMATION". Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 year 3 years 5 years 10 years
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................ $7 $21 $36 $81
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MARYLAND MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 25.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994(a)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net investment income 0.03 0.03 0.01
- -------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.01)
- -------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (b) 3.11% 3.36% 1.30%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Expenses 0.65% 0.65% 0.46%*
- --------------------------------------------------------------------------------
Net investment income 3.09% 3.30% 2.68%*
- --------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.65% 0.50% 0.53%*
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $54,286 $51,400 $56,275
- --------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 9, 1994 (date of initial public
investment) to October 31, 1994. For the period from April 25, 1994 (start
of business) to May 9, 1994, the Fund had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing primarily in short-term Maryland
municipal securities. The Fund may not be a suitable investment for retirement
plans or for non-Maryland taxpayers because it invests in municipal securities
of that state. A minimum initial investment of $10,000 over 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
- --------------------------------------------------------------------------------
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 State of
Maryland and Maryland municipalities consistent with stability of principal and
liquidity. 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 Maryland state and local
income tax. (Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 Maryland 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 Maryland state and local income tax, ("Maryland Municipal Securities").
Examples of Maryland Municipal Securities include, but are not limited to:
tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
bond anticipation notes 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 Maryland
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Maryland 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. 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, together with other illiquid securities, 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, all of comparable quality to other
securities in which the Fund invests, 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 depository institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Maryland
Municipal Securities is subject to the federal alternative minimum tax.
MARYLAND MUNICIPAL SECURITIES
Maryland 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.
Maryland 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 Maryland 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 Maryland 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 Maryland 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 Maryland
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Maryland 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
Maryland 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 Maryland 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. Due to these risk considerations, the
Fund's concentration in Maryland Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge more than 15% of the value
of its total assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interests. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Trustees, and could result in severe
penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset value
of its shares, computed at an annual rate, to obtain certain personal services
for shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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 is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$10,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares
through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 1:00 (Eastern time) to place an order. The order is
considered received immediately.
Payment by federal funds must be received before 3:00 (Eastern time) that day.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: Maryland Municipal Cash Trust; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Maryland Municipal Cash Trust. Orders by
mail are considered received when payment by check is converted into federal
funds (normally the business day after the check is received), and shares begin
earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Shareholder Services Company
receives the redemption request. According to the shareholder's instructions,
redemption proceeds can be sent to the financial institution or to the
shareholder by check or by wire. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests on
holidays when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement. Under limited
circumstances, arrangements may be made with the distributor for same-day
payment of proceeds, without that day's dividend, for redemption requests
received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares
purchased by check or through ACH will not be wired until that method of payment
has cleared.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from
the account and transferred electronically to any commercial bank, savings bank,
or credit union that is an ACH member. Shareholders may apply for participation
in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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 (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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$10,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of each portfolio in the Trust have equal
voting rights; except that in matters affecting only a particular portfolio,
only shareholders of that portfolio are entitled to vote. 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
election of Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
Maryland. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
MARYLAND TAXES. Under existing Maryland laws, distributions made by the Fund
will not be subject to Maryland state or local income taxes to the extent that
such distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest on tax-exempt obligations of Maryland
or its political subdivisions or authorities; (ii) interest on obligations of
the United States or an authority, commission, instrumentality, possession or
territory of the Unites States; or (iii) gain realized by the Fund from the sale
or exchange of bonds issued by Maryland, a political subdivision of Maryland, or
the United States government (excluding obligations issued by the District of
Columbia, a territory or possession of the United States, or a department,
agency, instrumentality, or political subdivision of the District, territory or
possession). Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
Maryland income taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
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
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
MARYLAND MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------------------------------ -------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--99.2%
- --------------------------------------------------------------------------------------------------
MARYLAND--94.8%
------------------------------------------------------------------------------------
$ 1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.60% CP (Baltimore Gas & Electric
Co.), Mandatory Tender 12/18/1996 $ 1,000,000
------------------------------------------------------------------------------------
1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.65% CP (Baltimore Gas & Electric
Co.), Mandatory Tender 11/12/1996 1,000,000
------------------------------------------------------------------------------------
1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.70% CP (Baltimore Gas & Electric
Co.), Mandatory Tender 11/21/1996 1,000,000
------------------------------------------------------------------------------------
1,900,000 Anne Arundel County, MD, EDRB (Series 1996) Weekly VRDNs (Atlas Container
Corporation Project)/(Mellon Bank NA, Pittsburgh LOC) 1,900,000
------------------------------------------------------------------------------------
1,375,000 Baltimore County, MD IDA, (Series 1994A) Weekly VRDNs (Pitts Realty Limited
Partnership)/(PNC Bank, NA, Delaware LOC) 1,375,000
------------------------------------------------------------------------------------
1,700,000 Baltimore County, MD Port Facility Monthly VRDNs (Occidental Petroleum
Corp.)/(Morgan Guaranty Trust Co., New York LOC) 1,700,000
------------------------------------------------------------------------------------
1,500,000 Baltimore County, MD, Revenue Bonds (1994 Issue) Weekly VRDNs (Direct Marketing
Associates, Inc. Facility)/(First National Bank of Maryland, Baltimore LOC) 1,500,000
------------------------------------------------------------------------------------
800,000 Baltimore, MD, (Series 1988) Weekly VRDNs (Cherill Associated
Facility)/(Nationsbank, N.A. LOC) 800,000
------------------------------------------------------------------------------------
1,500,000 Cecil County, MD, County Commissioners EDRB (Series 1988S) Weekly VRDNs (Williams
Mobile Offices, Inc.)/(First National Bank of Maryland, Baltimore LOC) 1,500,000
------------------------------------------------------------------------------------
910,000 Elkton, MD, Revenue Refunding Bonds (Series 1992) Weekly VRDNs (Highway Service
Ventures, Inc. Facility)/(First Union National Bank, Charlotte, NC LOC) 910,000
------------------------------------------------------------------------------------
3,141,000 Hartford County, MD, (Series 1989) Weekly VRDNs (Hartford Commons Associates
Facility)/(Nationsbank, N.A. LOC) 3,141,000
------------------------------------------------------------------------------------
2,000,000 Maryland EDC, Pooled Financing Revenue Bonds, (Series 1995) Weekly VRDNs (Maryland
Municipal Bond Fund)/(Nationsbank, N.A. LOC) 2,000,000
------------------------------------------------------------------------------------
</TABLE>
MARYLAND MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------------------------------ -------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------------------------
MARYLAND--CONTINUED
------------------------------------------------------------------------------------
$ 2,546,000 Maryland Health & Higher Educational Facilities Authority, Pooled Loan Program
Revenue Notes, 3.80% CP (John Hopkins University)/ (Sanwa Bank Ltd, Osaka LIQ),
Mandatory Tender 1/16/1997 $ 2,546,000
------------------------------------------------------------------------------------
1,000,000 Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Series
1985A) Weekly VRDNs (First National Bank of Chicago LOC) 1,000,000
------------------------------------------------------------------------------------
900,000 Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Series
1992B) Weekly VRDNs (North Arundel Hospital)/ (Mellon Bank NA, Pittsburgh LOC) 900,000
------------------------------------------------------------------------------------
2,000,000 Maryland State Community Development Administration, (Series 1990A) Weekly VRDNs
(College Estates)/(First National Bank of Maryland, Baltimore LOC) 2,000,000
------------------------------------------------------------------------------------
2,000,000 Maryland State Community Development Administration, Single Family Program Bonds
(1996 Second Series), 4.00% TOBs, Mandatory Tender 9/1/1997 2,000,000
------------------------------------------------------------------------------------
2,000,000 Maryland State Department of Transportation, 3.75% Bonds, 12/15/1996 2,000,036
------------------------------------------------------------------------------------
2,000,000 Maryland State Energy Financing Administration, Annual Tender Solid Waste Disposal
Revenue Refunding Bonds, 4.10% TOBs (Nevamar Corp.)/(International Paper Co. GTD),
Optional Tender 9/1/1997 2,000,000
------------------------------------------------------------------------------------
3,000,000 Maryland State Energy Financing Administration, IDRB (Series 1988) Weekly VRDNs
(Morningstar Foods, Inc.)/(Nationsbank of Texas, N.A. LOC) 3,000,000
------------------------------------------------------------------------------------
1,500,000 Maryland State Energy Financing Administration, Limited Obligation Variable Rate
Demand Revenue Bonds (Series 1996) Weekly VRDNs (Keywell L.L.C.)/(Bank of America
Illinois LOC) 1,500,000
------------------------------------------------------------------------------------
1,000,000 Maryland State IDFA, 4.75% Bonds (Holy Cross Health System Corp.), 12/1/1996 1,000,911
------------------------------------------------------------------------------------
3,300,000 Maryland State IDFA, Economic Development Revenue Refunding Bonds (Series 1994)
Weekly VRDNs (Johnson Controls, Inc.) 3,300,000
------------------------------------------------------------------------------------
1,500,000 Montgomery County, MD Housing Opportunities Commission, (Series 1996 C), 3.70% TOBs,
Mandatory Tender 3/17/1997 1,500,000
------------------------------------------------------------------------------------
</TABLE>
MARYLAND MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------------------------------ -------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------------------------
MARYLAND--CONTINUED
------------------------------------------------------------------------------------
$ 1,000,000 Montgomery County, MD Housing Opportunities Commission, Multifamily Housing Revenue
Bonds (1995 Series B), 3.90% BANs,
11/14/1996 $ 1,000,000
------------------------------------------------------------------------------------
3,000,000 Montgomery County, MD, EDR Weekly VRDNs (U.S. Pharmacopeial Convention
Facility)/(Chase Manhattan Bank N.A., New York LOC) 3,000,000
------------------------------------------------------------------------------------
1,100,000 Prince George's County, MD, IDRB (Series 1993), 4.10% TOBs (International Paper
Co.)/(International Paper Co. GTD), Optional Tender 7/15/1997 1,100,000
------------------------------------------------------------------------------------
1,500,000 University of Maryland, Series A, 6.90% Bonds, 10/1/1997 1,541,999
------------------------------------------------------------------------------------
4,260,000 Wicomico County, MD, EDRB (Series 1994) Weekly VRDNs (Field Container Co.
L.P.)/(Northern Trust Co., Chicago, IL LOC) 4,260,000
------------------------------------------------------------------------------------ -------------
Total 51,474,946
------------------------------------------------------------------------------------ -------------
PUERTO RICO--4.4%
------------------------------------------------------------------------------------
1,400,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.80% TOBs
(Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 1,400,000
------------------------------------------------------------------------------------
1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance
Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto
Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 1,000,000
------------------------------------------------------------------------------------ -------------
Total 2,400,000
------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENTS AT AMORTIZED COST (b) $ 53,874,946
------------------------------------------------------------------------------------ -------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 54% of the
portfolio as calculated based upon total portfolio market value.
(a) The Trust may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. A
NRSROs two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities, rated SP-1+, SP-1
or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's
Investors Service, Inc., or
MARYLAND MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term ratings
categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security. At October 31, 1996, the portfolio securities were rated as
follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<S> <C>
FIRST TIER SECOND TIER
94% 6%
</TABLE>
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($54,285,803) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs-- Bond Anticipation Notes
CP-- Commercial Paper
EDC-- Economic Development Commission
EDR-- Economic Development Revenue
EDRB-- Economic Development Revenue Bonds
GTD--Guaranty
IDA-- Industrial Development Authority
IDRB-- Industrial Development Revenue Bond
IDFA-- Industrial Development Finance
Authority
LIQ--Liquidity Agreement
LOC--Letter of Credit
PCA-- Pollution Control Authority
TOBs-- Tender Option Bonds
VRDNs-- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 53,874,946
- ---------------------------------------------------------------------------------------------------
Cash 139,168
- ---------------------------------------------------------------------------------------------------
Income receivable 285,064
- ---------------------------------------------------------------------------------------------------
Deferred expenses 21,246
- --------------------------------------------------------------------------------------------------- -------------
Total assets 54,320,424
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Income distribution payable $ 10,773
- ----------------------------------------------------------------------------------------
Payable for Shareholder Servicing Fee 11,255
- ----------------------------------------------------------------------------------------
Accrued expenses 12,593
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 34,621
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 54,285,803 shares outstanding $ 54,285,803
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$54,285,803 / 54,285,803 shares outstanding $1.00
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 1,775,776
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 237,399
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 16,439
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 19,218
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,494
- ---------------------------------------------------------------------------------------
Auditing fees 11,428
- ---------------------------------------------------------------------------------------
Legal fees 4,381
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 40,866
- ---------------------------------------------------------------------------------------
Shareholder services fee 118,700
- ---------------------------------------------------------------------------------------
Share registration costs 21,823
- ---------------------------------------------------------------------------------------
Printing and postage 7,216
- ---------------------------------------------------------------------------------------
Insurance premiums 2,994
- ---------------------------------------------------------------------------------------
Taxes 336
- ---------------------------------------------------------------------------------------
Miscellaneous 10,376
- --------------------------------------------------------------------------------------- -----------
Total expenses 617,670
- ---------------------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $(237,399)
- --------------------------------------------------------------------------
Waiver of shareholder services fee (4,748)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (64,815)
- -------------------------------------------------------------------------- -----------
Total waivers and reimbursements (306,962)
- --------------------------------------------------------------------------------------- -----------
Net expenses 310,708
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 1,465,068
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 1,465,068 $ 1,952,599
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income (1,465,068) (1,952,599)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 135,836,347 180,327,160
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 1,324,055 1,800,625
- -------------------------------------------------------------------------------
Cost of shares redeemed (134,274,793) (187,002,830)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 2,885,609 (4,875,045)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets 2,885,609 (4,875,045)
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 51,400,194 56,275,239
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 54,285,803 $ 51,400,194
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARYLAND MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Maryland Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the state of Maryland consistent with stability of
principal and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported
in the financial statements. Actual results could differ from those
estimated.
OTHER--Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
October 31, 1996, capital paid-in aggregated $54,285,803.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 135,836,347 180,327,160
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,324,055 1,800,625
- ----------------------------------------------------------------------------------
Shares redeemed (134,274,793) (187,002,830)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions 2,885,609 (4,875,045)
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, the Fund will pay Federated
Shareholder Services up to 0.25% of average daily net assets of the Fund
for the period. The fee paid to Federated Shareholder Services is used to
finance certain services for shareholders and to maintain shareholder
accounts. Federated Shareholder Services may voluntarily choose to waive
any portion of its fee. Federated Shareholder Services can modify or
terminate this voluntary waiver at any time at its sole discretion.
MARYLAND MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ"), through its subsidiary, Federated Shareholder
Services Company ("FSSC") serves as transfer and dividend disbursing agent
for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational and start-up administrative service
expenses of $45,952 were borne initially by the Adviser. The Fund has
agreed to reimburse the Adviser for the organizational and/or start-up
administrative expenses during the five year period following the effective
date. For the period ended October 31, 1996, the Fund paid $2,485 pursuant
to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 53% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 17% of total investments.
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Maryland Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Maryland
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1996 and the related statement of operations for
the year then ended, the statement of changes in net assets and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Maryland Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Maryland Municipal Cash Trust
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 Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
MARYLAND MUNICIPAL
CASH TRUST
PROSPECTUS
A Portfolio of Federated Municipal
Trust, an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[LOGO] Federated Investors
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229774
G00105-01-A (12/96)
MARYLAND MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Maryland Municipal Cash Trust (the ``Fund'), a portfolio
of Federated Municipal Trust (the ``Trust') dated December 31, 1996.
This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314229774
G00105-02-B(12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Investment Adviser 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Public Accountants 12
SHAREHOLDER SERVICES 12
DETERMINING NET ASSET VALUE 12
REDEMPTION IN KIND 13
MASSACHUSETTS PARTNERSHIP LAW 13
THE FUND'S TAX STATUS 13
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 13
Tax-Equivalent Yield 14
Tax-Equivalency Table 14
Total Return 15
Performance Comparisons 15
Economic and Market Information 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 16
Institutional Clients 16
Trust Organizations 16
Broker/Dealers and Bank Broker/Dealer Subsidiaries 16
APPENDIX 17
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
MARYLAND INVESTMENT RISKS
The Fund invests in obligations of Maryland issuers which results in the
Fund's performance being subject to risks associated with the overall
conditions present within Maryland (the `State''). The following
information is a brief summary of the recent prevailing economic conditions
and a general summary of the State's financial status. This information is
based on official statements related to securities that have been offered
by Maryland issuers and from other sources believed to be reliable but
should not be relied upon as a complete description of all relevant
information.
Maryland's economy differs from that of the nation, with a heavier
dependence on government, services (particularly business, engineering, and
management services) and trade than the typical state, and less reliance on
manufacturing. The State's economic structure reflects its proximity to
Washington, DC with one-tenth of civilian wages paid in the State coming
from federal agencies located in Maryland and 10% of Maryland's personal
income originating from jobs in the District of Columbia. Although this
structure adds a degree of concentration risk, the wages earned by
Maryland's federal workers also contributes to the State's above average
income and below average unemployment. Maryland's per capita income is the
fifth highest in the nation. Although the Maryland economy is rebounding
from the recession in the early 1990's, the pace of job growth has trailed
that of the nation and is expected to continue to due so into 1997. This
dampened growth is largely attributable to cutbacks in federal spending,
particularly in defense related programs.
State finances are well-managed with strong administrative control
exercised by the State Board of Public Works, which is comprised of the
governor, treasurer, and controller. The revenue stream is well
diversified, relying heavily on sales, income, and a variety of other taxes
(including a state property tax). The finances of the State have largely
improved since the early 1990's. The State went from a significant deficit
position in 1992 to an operating surplus in 1993, 1994 and 1995. Although
Maryland remains one of the nation's more indebted states (12th in the
nation in tax-supported debt per capita), it has kept borrowing within
constraints recommended by the State's Debt Affordability Committee. About
60% of the State's debt service is supported by a dedicated state property
tax.
The Fund's concentration in securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the State or its municipalities to meet their obligations will depend on
the availability of tax and other revenues; economic, political, and
demographic conditions within the State; and the underlying fiscal
condition of the State and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
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 its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued Maryland municipal securities or temporary
investments or enter into repurchase agreements in accordance with its
investment objective, policies, and limitations, and its Declaration of
Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
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 would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111 Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Maryland Municipal Cash Trust:
United Communications Group, Rockville, MD, owned approximately 8,856,844
shares (16.20%); Charles Bresler, Washington, D.C., owned approximately
5,598,843 shares (10.24%); and James G. Robinson, Baltimore, MD, owned
approximately 9,967,307 shares (18.24%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 31,1996, 1995 and for the period from April 25, 1994
(start of business) to October 31, 1994, the adviser earned $237,399,
$296,327 and $137,219, respectively, of which $237,399, $295,202 and
$137,147 were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the `Administrators.'' For the fiscal years ended October
31, 1996, 1995 and for the period from April 25, 1994 (start of business),
to October 31, 1994, the Administrators earned $125,000, $125,000, and
$20,890, respectively
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
<.R>
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal period ended October 31, 1996, the Fund paid shareholder
service fees in the amount of $118,700, of which $4,748 was waived.
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 .50% 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.
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.
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.
The Fund's yield for the seven-day period ended October 31, 1996, was
3.09%.
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. The Fund's effective
yield for the seven-day period ended October 31, 1996, was 3.13%.
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 47.1% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
The Fund's tax-equivalent yield for the seven-day period ended October 31,
1996, was 5.84%.
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 1996
STATE OF MARYLAND
INCLUDING LOCAL INCOME TAX
COMBINED FEDERAL, STATE, AND COUNTY INCOME TAX BRACKET:
22.50% 35.50% 38.50% 43.50% 47.10%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN: 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN: 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
2.00% 2.58% 3.10% 3.25% 3.54% 3.78%
2.50% 3.23% 3.88% 4.07% 4.42% 4.73%
3.00% 3.87% 4.65% 4.88% 5.31% 5.67%
3.50% 4.52% 5.43% 5.69% 6.19% 6.62%
4.00% 5.16% 6.20% 6.50% 7.08% 7.56%
4.50% 5.81% 6.98% 7.32% 7.96% 8.51%
5.00% 6.45% 7.75% 8.13% 8.85% 9.45%
5.50% 7.10% 8.53% 8.94% 9.73% 10.40%
6.00% 7.74% 9.30% 9.76% 10.62% 11.34%
6.50% 8.39% 10.08% 10.57% 11.50% 12.29%
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 LOCAL INCOME TAX RATE IS ASSUMED TO BE 50% OF THE STATE
RATE FOR ALL COUNTIES EXCLUDING ALLEGANY, BALITMORE, MONTGOMERY, PRINCE
GEORGE'S, QUEEN ANNE'S, ST. MARY'S, SOMERSET, TALBOT, WICOMICO, AND
WORCESTER.
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.
The Fund's average annual total returns for the one-year period ended
October 31, 1996, and for the period from May 9, 1994 (date of initial
public investment), through October 31, 1995, were 3.11% and 3.16%,
respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1996, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
CALIFORNIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of California Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term California municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of California, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
state of California consistent with stability of principal and liquidity.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
California Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27
- ------------------------------------------------------
ADDRESSES 28
- ------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.00%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.20%
Shareholder Services Fee (after waiver)(2)........................ 0.00%
Total Operating Expenses(3)................................................. 0.20%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholders services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1997. The total operating
expenses were 0.20% for the fiscal year ended October 31, 1996 and would have
been 1.10% absent the voluntary waivers of the management fee and shareholder
services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information". Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period............. $2 $ 6 $11 $ 26
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CALIFORNIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996(a)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.02
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.02)
- ------------------------------------------------------------------- ------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ------------------------------------------------------------------- ------------
TOTAL RETURN(b) 2.24%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 0.20%*
- -------------------------------------------------------------------
Net investment income 3.33%*
- -------------------------------------------------------------------
Expense waiver/reimbursement(c) 0.90%*
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,089
- -------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 4, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for banks and other
institutions that hold assets for individuals, trusts, estates, or partnerships
as a convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term California municipal securities. The Fund may
not be a suitable investment for retirement plans or for non-California
taxpayers because it invests in municipal securities of that state. A minimum
initial investment of $25,000 over 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
- --------------------------------------------------------------------------------
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 state of
California 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
complying with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
California municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days 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 California state income tax. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of 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 California 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 California state income tax imposed upon
non-corporate taxpayers ("California Municipal Securities"). Examples of
California Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 California
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 California 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. 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, together with other illiquid securities, 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, all of comparable quality to other
securities in which the Fund invests, 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 institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain California
Municipal Securities is subject to the federal alternative minimum tax.
CALIFORNIA MUNICIPAL SECURITIES
California 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.
California 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 California 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 California 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 California 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 California
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in California 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
California 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 California 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. The Fund's concentration in California
Municipal Securities may entail a greater level of risk than other types of
money market funds.
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 its total assets to secure such
borrowings. These investment limitations cannot be changed without shareholder
approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. Also, the adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic
reporting of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase or sale, by
the Fund; prohibit purchasing securities in initial public offerings; and
prohibit taking profits on securities held for less than sixty days. Violations
of the codes are subject to review by the Trustees, and could result in severe
penalties.
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 .25% of the average daily net asset value
of its shares, computed at an annual rate, to obtain certain personal services
for shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund 's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting 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 9:00 a.m. Pacific time (12:00 noon Eastern
time), 10:00 a.m. Pacific time, (1:00 p.m. Eastern time), and as of the close of
trading (normally 1:00 p.m., Pacific time or 4:00 p.m., Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 10:00 a.m. Pacific time (1:00 p.m. Eastern time), to
place an order. The order is considered received immediately. Payment by federal
funds must be received before 12:00 noon Pacific time (3:00 p.m. Eastern time),
that day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: California Municipal Cash
Trust--Institutional Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: California Municipal Cash
Trust--Institutional Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 9:00 a.m. Pacific time (12:00 noon Eastern time), 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution,"
as defined in the Securities Exchange Act of 1934. The Fund does not accept
signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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 12:00 noon Pacific time (3:00 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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
California. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
CALIFORNIA TAXES. Under existing California laws, distributions made by the Fund
will not be subject to California individual income taxes to the extent that
such distributions qualify as exempt-interest dividends under the California
Revenue and Taxation Code, and provided further that at the close of each
quarter, at least 50 percent of the value of the total assets of the Fund
consists of obligations the interest on which is exempt from California taxation
under either the Constitution or laws of California or the Constitution or laws
of the United States. The Fund will furnish its shareholders with a written note
designating exempt-interest dividends within 60 days after the close of its
taxable year. Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
California individual income taxes.
Dividends of the Fund are not exempt from the California taxes payable by
corporations.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
banks and other institutions and are subject to a minimum initial investment of
$25,000 within a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan, but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
CALIFORNIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, PERIOD ENDED YEAR ENDED SEPTEMBER 30,
---------------- OCTOBER 31, ---------------------------------------------------------
1996 1995 1994(a) 1994 1993 1992 1991 1990 1989(B)
------ ------ ------------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ----------------------------
Net investment income 0.03 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03
- ----------------------------
Net realized loss on
investment -- (0.01) -- -- -- -- -- -- --
- ---------------------------- ----- ----- -------- ----- ----- ----- ----- ----- ------
Total from investment
operations 0.03 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03
- ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------
CAPITAL CONTRIBUTION -- 0.01 -- -- -- -- -- -- --
- ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------
LESS DISTRIBUTIONS
- ----------------------------
Distributions from net
investment income (0.03) (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03 )
- ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------
TOTAL RETURN(c) 3.22% 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95%
- ----------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------
Expenses 0.49% 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%*
- ----------------------------
Net investment income 3.17% 3.33% 2.71%* 2.03% 2.00% 2.76% 4.19% 5.27% 5.86%*
- ----------------------------
Expense waiver/
reimbursement (d) 0.62% 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%*
- ----------------------------
SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period
(000 omitted) $132,159 $96,534 $81,563 $74,707 $104,322 $59,709 $56,754 $50,391 $36,628
- ----------------------------
</TABLE>
* Computed on an annualized basis.
(a) For the one month ended October 31, 1994. The Fund changed its fiscal
year-end from September 30, to October 31, beginning September 30, 1994.
(b) Reflects operations for the period from March 15, 1989 (date of initial
public offering) to September 30, 1989.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
(a) SHORT-TERM MUNICIPALS--99.6%
- ----------------------------------------------------------------------------------
CALIFORNIA--92.9%
------------------------------------------------------------------
$2,775,000 California HFA, Home Mortgage (Series 1989F), 3.80% TOBs (Citibank
NA, New York LIQ), Optional Tender 2/1/1997 $ 2,775,000
------------------------------------------------------------------
1,100,000 California Health Facilities Financing Authority Weekly VRDNs
(FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ) 1,100,000
------------------------------------------------------------------
6,000,000 California PCFA, (1996 Series C) Daily VRDNs (Pacific Gas &
Electric Co.)/(Bank of America NT and SA, San Francisco LOC) 6,000,000
------------------------------------------------------------------
7,700,000 California PCFA, (1996 Series G) Daily VRDNs (Pacific Gas &
Electric Co.) 7,700,000
------------------------------------------------------------------
10,000,000 California State, (Series B) 3.465%, VRNs, 6/30/1997 10,000,000
------------------------------------------------------------------
5,000,000 California Statewide Communities Development Authority Weekly
VRDNs (Memorial Health Services)/(ABN AMRO Bank N.V., Amsterdam
LIQ) 5,000,000
------------------------------------------------------------------
4,000,000 California Statewide Communities Development Authority, (1996
Series A), 4.75% TRANs (FSA INS), 6/30/1997 4,020,085
------------------------------------------------------------------
3,700,000 California Statewide Communities Development Authority, (Series A)
Weekly VRDNs (Barton Memorial Hospital)/(Banque Nationale de Paris
LOC) 3,700,000
------------------------------------------------------------------
2,000,000 California Statewide Communities Development Authority,
Certificates of Participation, 4.00% Bonds (Queen of
Angels-Hollywood Presbyterian Medical Center), 1/1/1997 2,000,000
------------------------------------------------------------------
6,000,000 Central Unified School District, CA, Certificates of Participation
(1995 Financing Project) Weekly VRDNs (Union Bank of California
LOC) 6,000,000
------------------------------------------------------------------
4,000,000 (b) Clipper CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs
(California Rural Home Mortgage Finance Authority)/(MBIA INS)/
(State Street Bank and Trust Co. LIQ) 4,000,000
------------------------------------------------------------------
2,395,000 Folsom Cordova Unified School District, CA, 4.50% TRANs,
10/16/1997 2,411,407
------------------------------------------------------------------
5,100,000 Glendale, CA, (Series 1984A) Monthly VRDNs, 3.40%, 9/15/96,
(Reliance Development Company, Inc.)/(Barclays Bank PLC, London
LOC) 5,100,000
------------------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------------
$4,000,000 Huntington Beach, CA, Multifamily Housing Revenue Refunding Bonds
(1996 Series A) Weekly VRDNs (Huntington Breakers
Apartments)/(Sumitomo Bank Ltd., Osaka LOC) $ 4,000,000
------------------------------------------------------------------
5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly VRDNs
(Channel Point Apartments)/(Union Bank of California LOC) 5,000,000
------------------------------------------------------------------
5,000,000 Los Angeles County, CA Local Educational Agencies, (Series A),
4.75% TRANs (FSA INS), 6/30/1997 5,022,675
------------------------------------------------------------------
1,700,000 Los Angeles County, CA Metropolitan Transportation Authority,
3.45% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de
Paris, Canadian Imperial Bank of Commerce, Toronto, National
Westminster Bank, PLC, London and Union Bank of California LOCs),
Mandatory Tender 12/11/1996 1,700,000
------------------------------------------------------------------
4,000,000 Los Angeles County, CA Metropolitan Transportation Authority,
3.55% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de
Paris, Canadian Imperial Bank of Commerce, Toronto, National
Westminster Bank, PLC, London and Union Bank of California LOCs),
Mandatory Tender 11/19/1996 4,000,000
------------------------------------------------------------------
4,000,000 Los Angeles County, CA, (Series A), 4.50% TRANs (Bank of America
NT and SA, San Francisco, Credit Suisse, Zurich, Morgan Guaranty
Trust Co., New York, Union Bank of Switzerland, Zurich and
Westdeutsche Landesbank Girozentrale LOCs), 6/30/1997 4,021,058
------------------------------------------------------------------
2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs
(Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) 2,000,000
------------------------------------------------------------------
2,200,000 North County, CA Schools Financing Authority, 4.75% TRANs,
7/1/1997 2,208,396
------------------------------------------------------------------
5,200,000 Orange County, CA IDA, (Series 1985B-Niguel Summit II) Weekly
VRDNs (Hon Development Corp.)/(Bank of America NT and SA, San
Francisco LOC) 5,200,000
------------------------------------------------------------------
7,800,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The
Lakes)/(Citibank NA, New York LOC) 7,800,000
------------------------------------------------------------------
4,000,000 Orange County, CA Local Transportation Authority, Sales Tax
Revenue Notes, 3.70% CP (Industrial Bank of Japan Ltd., Tokyo
LOC), Mandatory Tender 1/10/1997 4,000,000
------------------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------------
$5,000,000 Regents of University of California, (Series A), 3.55% CP (Bank of
America NT and SA, San Francisco, Bank of Montreal, Caisse
Nationale De Credit Agricole, Paris, Canadian Imperial Bank of
Commerce, Toronto and Societe Generale, Paris LIQs), Mandatory
Tender 1/17/1997 $ 5,000,000
------------------------------------------------------------------
3,000,000 Riverside County, CA School Financing Authority, 4.625% RANs,
7/17/1997 3,011,701
------------------------------------------------------------------
2,400,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA
Public Facility Finance)/(Commerzbank AG, Frankfurt and National
Westminster Bank, PLC, London LOCs) 2,400,000
------------------------------------------------------------------
900,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A)
Weekly VRDNs (Toronto-Dominion Bank LOC) 900,000
------------------------------------------------------------------
1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs (Woodview
Apartments)/(Swiss Bank Corp., Basle LOC) 1,700,000
------------------------------------------------------------------
3,400,000 San Dimas, CA Redevelopment Agency, (Series 1995) Weekly VRDNs
(Diversified Shopping Center Project)/(Morgan Guaranty Trust Co.,
New York LOC) 3,400,000
------------------------------------------------------------------
5,800,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) Weekly
VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto LOC) 5,800,000
------------------------------------------------------------------
1,400,000 Santa Clara County-El Comino Hospital District, CA, (Series 1985G)
Weekly VRDNs (Valley Medical Center)/(National Westminster Bank,
PLC, London LOC) 1,400,000
------------------------------------------------------------------
400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA
Electric System)/(National Westminster Bank, PLC, London LOC) 400,000
------------------------------------------------------------------
1,500,000 Selma, CA, 4.50% TRANs, 6/30/1997 1,502,882
------------------------------------------------------------------
2,000,000 South Coast, CA Local Education Agencies, (Series 1996A), 4.75%
TRANs, 6/30/1997 2,008,617
------------------------------------------------------------------
4,000,000 Southern California Metropolitan Water District, CA, Commercial
Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank
Girozentrale LIQ), Mandatory Tender 1/15/1997 4,000,000
------------------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------------
$3,000,000 Southern California Metropolitan Water District, CA, Commercial
Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank
Girozentrale LIQ), Mandatory Tender 1/23/1997 $ 3,000,000
------------------------------------------------------------------
610,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, Inc.)/
(Nationsbank of Texas, N.A. LOC) 610,000
------------------------------------------------------------------
1,500,000 Victor Valley Community College District, CA, 4.00% TRANs (Union.
Bank of California LOC), 1/17/1997 1,501,218
------------------------------------------------------------------ ------------
Total 141,393,039
------------------------------------------------------------------ ------------
PUERTO RICO--6.7%
------------------------------------------------------------------
3,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 2/14/1997 3,000,000
------------------------------------------------------------------
4,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory
Tender 11/7/1996 4,000,000
------------------------------------------------------------------
3,200,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1988), 3.40% CP (Inter American University of Puerto Rico)/(Bank
of Tokyo-Mitsubishi Ltd. LOC), Mandatory Tender 11/20/1996 3,200,000
------------------------------------------------------------------ ------------
Total 10,200,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $151,593,039
------------------------------------------------------------------ ------------
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for sub-
categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security rated by multiple NRSROs in different rating categories should be
identified as a First or Second Tier security.
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, this security amounted
to $4,000,000 which represents 2.63% of net assets.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
------------- -------------
<S> <C> <C>
100% 0.0%
</TABLE>
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($152,247,434) at October 31, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
INS -- Insured
LIQ -- Liquidity Agreement
LOCs -- Letter(s) of Credit
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCA -- Pollution Control Authority
PCFA -- Pollution Control Finance Authority
PLC -- Public Limited Company
RANs -- Revenue Anticipation Notes
SA -- Support Agreement
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
VRDNs -- Variable Rate Demand Notes
VRNs -- Variable Rate Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $151,593,039
- ------------------------------------------------------------------------------
Cash 173,744
- ------------------------------------------------------------------------------
Income receivable 828,187
- ------------------------------------------------------------------------------
Receivable for shares sold 2,752
- ------------------------------------------------------------------------------ ------------
Total assets 152,597,722
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Payable for shares redeemed $ 45,949
- -------------------------------------------------------------------
Income distribution payable 222,410
- -------------------------------------------------------------------
Payable to Shareholder Servicing Agent 29,745
- -------------------------------------------------------------------
Accrued expenses 52,184
- ------------------------------------------------------------------- --------
Total liabilities 350,288
- ------------------------------------------------------------------------------ ------------
NET ASSETS for 152,247,434 shares outstanding $152,247,434
- ------------------------------------------------------------------------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------
$132,158,836 / 132,158,836 shares outstanding $1.00
- ------------------------------------------------------------------------------ ------------
INSTITUTIONAL SHARES:
- ------------------------------------------------------------------------------
$20,088,598 / 20,088,598 shares outstanding $1.00
- ------------------------------------------------------------------------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest $3,669,145
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $ 501,955
- ----------------------------------------------------------------------
Administrative personnel and services fee 145,082
- ----------------------------------------------------------------------
Custodian fees 20,237
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 52,814
- ----------------------------------------------------------------------
Directors'/Trustees' fees 3,241
- ----------------------------------------------------------------------
Auditing fees 12,561
- ----------------------------------------------------------------------
Legal fees 5,311
- ----------------------------------------------------------------------
Portfolio accounting fees 49,379
- ----------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 229,181
- ----------------------------------------------------------------------
Shareholder services fee--Institutional Shares 21,796
- ----------------------------------------------------------------------
Share registration costs 55,176
- ----------------------------------------------------------------------
Printing and postage 15,702
- ----------------------------------------------------------------------
Insurance premiums 3,885
- ----------------------------------------------------------------------
Miscellaneous 1,556
- ---------------------------------------------------------------------- ----------
Total expenses 1,117,876
- ----------------------------------------------------------------------
Waivers and reimbursements--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $(501,955)
- ----------------------------------------------------------
Waiver of shareholder services fee--Institutional
Service Shares (19,427)
- ----------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (21,796)
- ----------------------------------------------------------
Reimbursement of other operating expenses (103,747)
- ---------------------------------------------------------- ---------
Total waivers and reimbursements (646,925)
- ---------------------------------------------------------------------- ----------
Net expenses 470,951
- ------------------------------------------------------------------------------------ ----------
Net investment income $3,198,194
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 3,198,194 $ 3,099,882
- --------------------------------------------------------------
Net realized (loss) on investments -- (750,875)
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 3,198,194 2,349,007
- -------------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION -- 750,875
- -------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------
Institutional Service Shares (2,906,707) (3,099,882)
- --------------------------------------------------------------
Institutional Shares (291,487) --
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (3,198,194) (3,099,882)
- -------------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 477,899,575 361,842,642
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 907,904 471,326
- --------------------------------------------------------------
Cost of shares redeemed (423,093,903) (347,342,783)
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share transactions 55,713,576 14,971,185
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets 55,713,576 14,971,185
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 96,533,858 81,562,673
- -------------------------------------------------------------- ---------------- ----------------
End of period $ 152,247,434 $ 96,533,858
- -------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Fund consists of sixteen portfolios. The financial
statements included herein are only those of California Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Institutional Service Shares.
Effective March 4, 1996, the Fund added Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
California consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some cases, the restricted securities may be resold without registration
upon exercise of a demand feature. Such restricted securities may be
determined to be liquid under criteria established by the Board of Trustees
(the "Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on the restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
<S> <C> <C>
Clipper CA Tax-Exempt Trust (1996 Issue A) 6/28/1996 $4,040,753
</TABLE>
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30,
INSTITUTIONAL SERVICE SHARES 1996 1995
- ---------------------------- ------------ --------------
<S> <C> <C>
Shares sold 422,168,406 361,842,642
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 907,892 471,326
- ----------------------------------------------------------
Shares redeemed (387,451,320) (347,342,783)
- ---------------------------------------------------------- ------------ -------------
Net change resulting from Institutional Service Share
transactions 35,624,978 14,971,185
- ---------------------------------------------------------- ----------- -------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
INSTITUTIONAL SHARES 1996(a)
- -------------------- ------------
<S> <C>
Shares sold 55,731,169
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 12
- ----------------------------------------------------------
Shares redeemed (35,642,583)
- ---------------------------------------------------------- -----------
Net change resulting from Institutional Share
transactions 20,088,598
- ---------------------------------------------------------- -----------
Net change resulting from Fund Share transactions 55,713,576
- ---------------------------------------------------------- -----------
</TABLE>
(a) For the period from March 4, 1996 (date of initial public investment) to
October 31, 1996.
At October 31, 1996, capital paid-in aggregated $152,247,434.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CAPITAL CONTRIBUTION--Federated Management made a capital contribution in the
amount of $750,875 to California Municipal Cash Trust during the year ended
October 31, 1995. The contribution represents the excess over fair market value
($720,000) paid by Federated Management to acquire $4,000,000 par, Orange County
, CA Series B Bonds from the Fund on July 10, 1995. The contribution also
consist of the LOC ($30,875) obtained by Federated Management on December 7,
1994 to support the value of the Orange County Bonds. The LOC guaranteed the
principal amount of the securities in the event the issuer did not timely pay
the principal at maturity. These transactions for the fiscal year ended October
31, 1995 resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or net assets.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $240,495,500 and $211,800,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 61% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 8.2% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(California Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1996, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 14 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
California 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 & Trust Co. P.O. Box 8600
Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of Federated Municipal
Trust, an Open-End Management
Investment Company
Prospectus dated December 31, 1996
LOGO
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229675
G00300-01-IS (12/96)
LOGO
CALIFORNIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of California Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term California municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of California, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and the personal income taxes
imposed by the state of California consistent with stability of principal and
liquidity.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
California Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchases Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASS OF SHARES 14
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 28
- ------------------------------------------------------
ADDRESSES 29
- ------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable).............................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.00%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.49%
Shareholder Services Fee................................................ 0.25%
Total Operating Expenses(2)................................................. 0.49%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The maximum
management fee is 0.50%.
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1997. The total operating
expenses were 0.49% for fiscal year ended October 31, 1996 and would have been
1.11% absent the voluntary waivers of the management fee, a portion of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period......... $5 $16 $27 $ 62
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CALIFORNIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, YEAR ENDED SEPTEMBER 30,
------------------- ------------ ---------------------------------------------------------
1996 1995 1994(a) 1994 1993 1992 1991 1990 1989(B)
---------- ------ --------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------
Net investment income 0.03 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03
- ---------------------------
Net realized loss on
investment -- (0.01) -- -- -- -- -- -- --
- --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------
Total from investment
operations 0.03 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03
- --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------
CAPITAL CONTRIBUTIONS -- 0.01 -- -- -- -- -- -- --
- --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------
LESS DISTRIBUTIONS
- ---------------------------
Distributions from net
investment income (0.03) (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03)
- --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------
TOTAL RETURN(b) 3.22% 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95%
- ---------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------
Expenses 0.49% 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%*
- ---------------------------
Net investment income 3.17% 3.33% 2.71%*2.03% 2.00% 2.76% 4.19% 5.27% 5.86%*
- ---------------------------
Expense waiver/
reimbursement (d) 0.62% 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%*
- ---------------------------
SUPPLEMENTAL DATA
- ---------------------------
Net assets, end of period
(000 omitted) $132,159 $96,534 $81,563 $74,707 $104,322 $59,709 $56,754 $50,391 $36,628
- ---------------------------
</TABLE>
* Computed on an annualized basis.
(a) For the one month ended October 31, 1994. The Fund changed its fiscal
year-end from September 30, to October 31, beginning September 30, 1994.
(b) Reflects operations for the period from March 15, 1989 (date of initial
public offering) to September 30, 1989.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for banks and other
institutions that hold assets for individuals, trusts, estates, or partnerships
as a convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term California municipal securities. The Fund may
not be a suitable investment for retirement plans or for non-California
taxpayers because it invests in municipal securities of that state. A minimum
initial investment of $25,000 over 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
- --------------------------------------------------------------------------------
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 state of
California 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
complying with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
California municipal securities (as defined below) maturing in 13 months or
less. The average maturity of the securities in the Fund's portfolio, computed
on a dollar-weighted basis, will be 90 days 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 California state income tax (Federal regular income tax does not include the
federal individual alternative minimum tax or the federal alternative minimum
tax for corporations.) Unless indicated otherwise, the investment policies may
be changed by the Board of 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 California 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 California state income tax imposed upon
non-corporate taxpayers ("California Municipal Securities"). Examples of
California Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 California
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 California 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. 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, together with other illiquid securities, 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, all of comparable quality
to other securities in which the Fund invests, 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 institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain California
Municipal Securities is subject to the federal alternative minimum tax.
CALIFORNIA MUNICIPAL SECURITIES
California 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.
California 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 California 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 California 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 California 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 California
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in California 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
California 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 California 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. Due to these risk considerations, the
Fund's concentration in California Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of those assets to secure such
borrowings. These investment limitations cannot be changed without shareholder
approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. Also, the adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic
reporting of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase or sale, by
the Fund; prohibit purchasing securities in initial public offerings; and
prohibit taking profits on securities held for less than sixty days. Violations
of the codes are subject to review by the Trustees, and could result in severe
penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- -------- ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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 9:00 a.m. Pacific time, (12:00 noon Eastern
time), 10:00 a.m. Pacific time, (1:00 p.m. Eastern time), and as of the close of
trading (normally 1:00 p.m. Pacific time or 4:00 p.m., Eastern time), on the New
York Stock Exchange, Monday through Friday, except on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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 is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$25,000 or more within a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 10:00 a.m. Pacific time (1:00 p.m. Eastern time), to
place an order. The order is considered received immediately. Payment by federal
funds must be received before 12:00 noon Pacific time (3:00 p.m. Eastern time),
that day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: California Municipal Cash
Trust--Institutional Service Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: California Municipal Cash
Trust--Institutional Service Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
from the shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in Fund shares. Shareholders should contact their financial
institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Shareholder Services Company
receives the redemption request. According to the shareholder's instructions,
redemption proceeds can be sent to the financial institution or to the
shareholder by check or by wire. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 9:00 am. Pacific time (12:00 noon Eastern time), 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. Under
limited circumstances arrangements may be made with the distributor for same-day
payment of proceeds, without that day's dividend for redemption requests
received before 11:00 a.m. Pacific time (2:00 p.m. Eastern time). Proceeds from
redeemed shares purchased by check or through ACH will not be wired until that
method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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 10:00 a.m. Pacific time (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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
California. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
CALIFORNIA TAXES. Under existing California laws, distributions made by the
Fund will not be subject to California individual income taxes to the extent
that such distributions qualify as exempt-interest dividends under the
California Revenue and Taxation Code, so long as at the close of each quarter,
at least 50 percent of the value of the total assets of the Fund consists of
obligations the interest on which is exempt from California taxation under
either the Constitution or laws of California or the Constitution or laws of the
United States. The Fund will furnish its shareholders with a written note
designating exempt-interest dividends within 60 days after the close of its
taxable year. Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
California individual income taxes.
Dividends of the Fund are not exempt from the California taxes payable by
corporations.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to banks and other
financial institutions and are subject to a minimum initial investment of
$25,000 within a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan, but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
CALIFORNIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996(a)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.02
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.02)
- ------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ------------------------------------------------------------------- -------
TOTAL RETURN(b) 2.24%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 0.20%*
- -------------------------------------------------------------------
Net investment income 3.33%*
- -------------------------------------------------------------------
Expense waiver/reimbursement(c) 0.90%*
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,089
- -------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 4, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
(a) SHORT-TERM MUNICIPALS--99.6%
- ----------------------------------------------------------------------------------
CALIFORNIA--92.9%
------------------------------------------------------------------
$2,775,000 California HFA, Home Mortgage (Series 1989F), 3.80% TOBs (Citibank
NA, New York LIQ), Optional Tender 2/1/1997 $ 2,775,000
------------------------------------------------------------------
1,100,000 California Health Facilities Financing Authority Weekly VRDNs
(FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ) 1,100,000
------------------------------------------------------------------
6,000,000 California PCFA, (1996 Series C) Daily VRDNs (Pacific Gas &
Electric Co.)/(Bank of America NT and SA, San Francisco LOC) 6,000,000
------------------------------------------------------------------
7,700,000 California PCFA, (1996 Series G) Daily VRDNs (Pacific Gas &
Electric Co.) 7,700,000
------------------------------------------------------------------
10,000,000 California State, 3.465%, (Series B) VRNs, 6/30/1997 10,000,000
------------------------------------------------------------------
5,000,000 California Statewide Communities Development Authority Weekly
VRDNs (Memorial Health Services)/(ABN AMRO Bank N.V., Amsterdam
LIQ) 5,000,000
------------------------------------------------------------------
4,000,000 California Statewide Communities Development Authority, (1996
Series A), 4.75% TRANs (FSA INS), 6/30/1997 4,020,085
------------------------------------------------------------------
3,700,000 California Statewide Communities Development Authority, (Series A)
Weekly VRDNs (Barton Memorial Hospital)/(Banque Nationale de Paris
LOC) 3,700,000
------------------------------------------------------------------
2,000,000 California Statewide Communities Development Authority,
Certificates of Participation, 4.00% Bonds (Queen of
Angels-Hollywood Presbyterian Medical Center), 1/1/1997 2,000,000
------------------------------------------------------------------
6,000,000 Central Unified School District, CA, Certificates of Participation
(1995 Financing Project) Weekly VRDNs (Union Bank of California
LOC) 6,000,000
------------------------------------------------------------------
4,000,000 (b) Clipper CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs
(California Rural Home Mortgage Finance Authority)/(MBIA INS)/
(State Street Bank and Trust Co. LIQ) 4,000,000
------------------------------------------------------------------
2,395,000 Folsom Cordova Unified School District, CA, 4.50% TRANs,
10/16/1997 2,411,407
------------------------------------------------------------------
5,100,000 Glendale, CA, (Series 1984A) Monthly VRDNs, 3.40%,
9/15/1996 (Reliance Development Company, Inc.)/(Barclays Bank PLC,
London LOC) 5,100,000
------------------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------------
$4,000,000 Huntington Beach, CA, Multifamily Housing Revenue Refunding Bonds
(1996 Series A) Weekly VRDNs (Huntington Breakers
Apartments)/(Sumitomo Bank Ltd., Osaka LOC) $ 4,000,000
------------------------------------------------------------------
5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly VRDNs
(Channel Point Apartments)/(Union Bank of California LOC) 5,000,000
------------------------------------------------------------------
5,000,000 Los Angeles County, CA Local Educational Agencies, (Series A),
4.75% TRANs (FSA INS), 6/30/1997 5,022,675
------------------------------------------------------------------
1,700,000 Los Angeles County, CA Metropolitan Transportation Authority,
3.45% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de
Paris, Canadian Imperial Bank of Commerce, Toronto, National
Westminster Bank, PLC, London and Union Bank of California LOCs),
Mandatory Tender 12/11/1996 1,700,000
------------------------------------------------------------------
4,000,000 Los Angeles County, CA Metropolitan Transportation Authority,
3.55% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de
Paris, Canadian Imperial Bank of Commerce, Toronto, National
Westminster Bank, PLC, London and Union Bank of California LOCs),
Mandatory Tender 11/19/1996 4,000,000
------------------------------------------------------------------
4,000,000 Los Angeles County, CA, (Series A), 4.50% TRANs (Bank of America
NT and SA, San Francisco, Credit Suisse, Zurich, Morgan Guaranty
Trust Co., New York, Union Bank of Switzerland, Zurich and
Westdeutsche Landesbank Girozentrale LOCs), 6/30/1997 4,021,058
------------------------------------------------------------------
2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs
(Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) 2,000,000
------------------------------------------------------------------
2,200,000 North County, CA Schools Financing Authority, 4.75% TRANs,
7/1/1997 2,208,396
------------------------------------------------------------------
5,200,000 Orange County, CA IDA, (Series 1985B-Niguel Summit II) Weekly
VRDNs (Hon Development Corp.)/(Bank of America NT and SA, San
Francisco LOC) 5,200,000
------------------------------------------------------------------
7,800,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The
Lakes)/(Citibank NA, New York LOC) 7,800,000
------------------------------------------------------------------
4,000,000 Orange County, CA Local Transportation Authority, Sales Tax
Revenue Notes, 3.70% CP (Industrial Bank of Japan Ltd., Tokyo
LOC), Mandatory Tender 1/10/1997 4,000,000
------------------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------------
$5,000,000 Regents of University of California, (Series A), 3.55% CP (Bank of
America NT and SA, San Francisco, Bank of Montreal, Caisse
Nationale De Credit Agricole, Paris, Canadian Imperial Bank of
Commerce, Toronto and Societe Generale, Paris LIQs), Mandatory
Tender 1/17/1997 $ 5,000,000
------------------------------------------------------------------
3,000,000 Riverside County, CA School Financing Authority, 4.625% RANs,
7/17/1997 3,011,701
------------------------------------------------------------------
2,400,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA
Public Facility Finance)/(Commerzbank AG, Frankfurt and National
Westminster Bank, PLC, London LOCs) 2,400,000
------------------------------------------------------------------
900,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A)
Weekly VRDNs (Toronto-Dominion Bank LOC) 900,000
------------------------------------------------------------------
1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs (Woodview
Apartments)/(Swiss Bank Corp., Basle LOC) 1,700,000
------------------------------------------------------------------
3,400,000 San Dimas, CA Redevelopment Agency, (Series 1995) Weekly VRDNs
(Diversified Shopping Center Project)/(Morgan Guaranty Trust Co.,
New York LOC) 3,400,000
------------------------------------------------------------------
5,800,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) Weekly
VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto LOC) 5,800,000
------------------------------------------------------------------
1,400,000 Santa Clara County-El Comino Hospital District, CA, (Series 1985G)
Weekly VRDNs (Valley Medical Center)/(National Westminster Bank,
PLC, London LOC) 1,400,000
------------------------------------------------------------------
400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA
Electric System)/(National Westminster Bank, PLC, London LOC) 400,000
------------------------------------------------------------------
1,500,000 Selma, CA, 4.50% TRANs, 6/30/1997 1,502,882
------------------------------------------------------------------
2,000,000 South Coast, CA Local Education Agencies, (Series 1996A), 4.75%
TRANs, 6/30/1997 2,008,617
------------------------------------------------------------------
4,000,000 Southern California Metropolitan Water District, CA, Commercial
Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank
Girozentrale LIQ), Mandatory Tender 1/15/1997 4,000,000
------------------------------------------------------------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C>
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
CALIFORNIA--CONTINUED
------------------------------------------------------------------
$3,000,000 Southern California Metropolitan Water District, CA, Commercial
Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank
Girozentrale LIQ), Mandatory Tender 1/23/1997 $ 3,000,000
------------------------------------------------------------------
610,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, Inc.)/
(Nationsbank of Texas, N.A. LOC) 610,000
------------------------------------------------------------------
1,500,000 Victor Valley Community College District, CA, 4.00% TRANs (Union.
Bank of California LOC), 1/17/1997 1,501,218
------------------------------------------------------------------ ------------
Total 141,393,039
------------------------------------------------------------------ ------------
PUERTO RICO--6.7%
------------------------------------------------------------------
3,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 2/14/1997 3,000,000
------------------------------------------------------------------
4,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory
Tender 11/7/1996 4,000,000
------------------------------------------------------------------
3,200,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series
1988), 3.40% CP (Inter American University of Puerto Rico)/(Bank
of Tokyo-Mitsubishi Ltd. LOC), Mandatory Tender 11/20/1996 3,200,000
------------------------------------------------------------------ ------------
Total 10,200,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $151,593,039
------------------------------------------------------------------ ------------
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for sub-
categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security rated by multiple NRSROs in different rating categories should be
identified as a First or Second Tier security.
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, this security amounted
to $4,000,000 which represents 2.63% of net assets.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
----------- ------------
<S> <C> <C>
100% 0.0%
</TABLE>
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($152,247,434) at October 31, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
INS -- Insured
LIQ -- Liquidity Agreement
LOCs -- Letter(s) of Credit
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCA -- Pollution Control Authority
PCFA -- Pollution Control Finance Authority
PLC -- Public Limited Company
RANs -- Revenue Anticipation Notes
SA -- Support Agreement
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
VRDNs -- Variable Rate Demand Notes
VRNs -- Variable Rate Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $151,593,039
- ------------------------------------------------------------------------------
Cash 173,744
- ------------------------------------------------------------------------------
Income receivable 828,187
- ------------------------------------------------------------------------------
Receivable for shares sold 2,752
- ------------------------------------------------------------------------------ ------------
Total assets 152,597,722
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Payable for shares redeemed $ 45,949
- -------------------------------------------------------------------
Income distribution payable 222,410
- -------------------------------------------------------------------
Payable to Shareholder Servicing Agent 29,745
- -------------------------------------------------------------------
Accrued expenses 52,184
- ------------------------------------------------------------------- --------
Total liabilities 350,288
- ------------------------------------------------------------------------------ ------------
NET ASSETS for 152,247,434 shares outstanding $152,247,434
- ------------------------------------------------------------------------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------
$132,158,836 / 132,158,836 shares outstanding $1.00
- ------------------------------------------------------------------------------ ------------
INSTITUTIONAL SHARES:
- ------------------------------------------------------------------------------
$20,088,598 / 20,088,598 shares outstanding $1.00
- ------------------------------------------------------------------------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest $3,669,145
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $ 501,955
- ----------------------------------------------------------------------
Administrative personnel and services fee 145,082
- ----------------------------------------------------------------------
Custodian fees 20,237
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 52,814
- ----------------------------------------------------------------------
Directors'/Trustees' fees 3,241
- ----------------------------------------------------------------------
Auditing fees 12,561
- ----------------------------------------------------------------------
Legal fees 5,311
- ----------------------------------------------------------------------
Portfolio accounting fees 49,379
- ----------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 229,181
- ----------------------------------------------------------------------
Shareholder services fee--Institutional Shares 21,796
- ----------------------------------------------------------------------
Share registration costs 55,176
- ----------------------------------------------------------------------
Printing and postage 15,702
- ----------------------------------------------------------------------
Insurance premiums 3,885
- ----------------------------------------------------------------------
Miscellaneous 1,556
- ---------------------------------------------------------------------- ----------
Total expenses 1,117,876
- ----------------------------------------------------------------------
Waivers and reimbursements--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $(501,955)
- ----------------------------------------------------------
Waiver of shareholder services fee--Institutional
Service Shares (19,427)
- ----------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (21,796)
- ----------------------------------------------------------
Reimbursement of other operating expenses (103,747)
- ---------------------------------------------------------- ---------
Total waivers and reimbursements (646,925)
- ---------------------------------------------------------------------- ----------
Net expenses 470,951
- ------------------------------------------------------------------------------------ ----------
Net investment income $3,198,194
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 3,198,194 $ 3,099,882
- -------------------------------------------------------------- ---------------- ----------------
Net realized (loss) on investments -- (750,875)
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 3,198,194 2,349,007
- -------------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION -- 750,875
- -------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------
Institutional Service Shares (2,906,707) (3,099,882)
- --------------------------------------------------------------
Institutional Shares (291,487) --
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (3,198,194) (3,099,882)
- -------------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 477,899,575 361,842,642
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 907,904 471,326
- --------------------------------------------------------------
Cost of shares redeemed (423,093,903) (347,342,783)
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share transactions 55,713,576 14,971,185
- -------------------------------------------------------------- ---------------- ----------------
Change in net assets 55,713,576 14,971,185
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 96,533,858 81,562,673
- -------------------------------------------------------------- ---------------- ----------------
End of period $ 152,247,434 $ 96,533,858
- -------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CALIFORNIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Fund consists of sixteen portfolios. The financial
statements included herein are only those of California Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Institutional Service Shares.
Effective March 4, 1996 the Fund added Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
California consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some cases, the restricted securities may be resold without registration
upon exercise of a demand feature. Such restricted securities may be
determined to be liquid under criteria established by the Board of Trustees
(the "Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on the restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
<S> <C> <C>
Clipper CA Tax-Exempt Trust (1996 Issue A) 6/28/1996 $4,040,753
</TABLE>
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30,
INSTITUTIONAL SERVICE SHARES 1996 1995
- ---------------------------- ----------- -------------
<S> <C> <C>
Shares sold 422,168,406 361,842,642
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 907,892 471,326
- ----------------------------------------------------------
Shares redeemed (387,451,320) (347,342,783)
- ---------------------------------------------------------- ----------- --------------
Net change resulting from Institutional Service Share
transactions 35,624,978 14,971,185
- ---------------------------------------------------------- ----------- --------------
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
INSTITUTIONAL SHARES 1996(a)
- -------------------- ------------
<S> <C>
Shares sold 55,731,169
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 12
- ----------------------------------------------------------
Shares redeemed (35,642,583)
- ---------------------------------------------------------- -----------
Net change resulting from Institutional Share
transactions 20,088,598
- ---------------------------------------------------------- -----------
Net change resulting from Fund share transactions 55,713,576
- ---------------------------------------------------------- -----------
</TABLE>
(a) For the period from March 4, 1996 (date of initial public investment) to
October 31, 1996.
At October 31, 1996, capital paid in aggregated $152,247,434.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
CALIFORNIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CAPITAL CONTRIBUTION--Federated Management made a capital contribution in the
amount of $750,875 to California Municipal Cash Trust during the year ended
October 31, 1995. The contribution represents the excess over fair market value
($720,000) paid by Federated Management to acquire $4,000,000 par, Orange County
, CA Series B Bonds from the Fund on July 10, 1995. The contribution also
consist of the LOC ($30,875) obtained by Federated Management on December 7,
1994 to support the value of the Orange County Bonds. The LOC guaranteed the
principal amount of the securities in the event the issuer did not timely pay
the principal at maturity. These transactions for the fiscal year ended October
31, 1995, resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or net assets.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $240,495,500 and $211,800,000, respectively.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 61% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 8.2% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(California Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1996, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 15 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
California Municipal Cash Trust
Institutional Service 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 & Trust Co. P.O. Box 8600
Boston, MA 02266-8600
- ----------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ----------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of Federated
Municipal Trust, an Open-End
Management Investment Company
Prospectus dated December 31, 1996
LOGO FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
LOGO
Cusip 314229766
G00329-01-SS (12/96)
CALIFORNIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of California Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[logo]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229675
Cusip 314229766
G0329-02 (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Credit Enhancement 2
CALIFORNIA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 6
Share Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Investment Adviser 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Public Accountants 12
SHAREHOLDER SERVICES 12
DETERMINING NET ASSET VALUE 12
REDEMPTION IN KIND 13
MASSACHUSETTS PARTNERSHIP LAW 13
THE FUND'S TAX STATUS 13
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 13
Tax-Equivalent Yield 14
Tax-Equivalency Table 14
Total Return 15
Performance Comparisons 16
Economic and Market Information 16
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 16
Institutional Clients 17
Trust Organizations 17
Broker/Dealers and Bank Broker/Dealer Subsidiaries 17
APPENDIX 18
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
CALIFORNIA INVESTMENT RISKS
LIMITS ON TAXING AND SPENDING AUTHORITY
Developments in California ( the `State'' or ``California'') which
constrain the taxing and spending authority of California governmental
entities could adversely affect the ability of such entities to meet their
interest and/or principal payment obligations on securities they have
issued or will issue. The following information constitutes only a brief
summary and is not intended as a complete description.
In 1978, a statewide referendum approved Proposition 13, an amendment to
the California Constitution limiting both the valuation of real property
for property tax purposes and the power of local taxing authorities to
increase real property tax revenues. To provide revenue to local
governments, legislation was enacted shortly thereafter providing for the
redistribution to local governments of the State's then existing surplus in
its General Fund, reallocation of revenues to local governments, and
assumption by the State of certain local government obligations. More
recent California legislation has, however, reduced State assistance
payments to local governments and reallocated a portion of such payments to
the State's General Fund.
In 1979, California voters amended the California Constitution again by
passing Article XIII B, which imposes an appropriations limit on the
spending authority of certain State and local government entities. The
State's appropriations limit is based on its 1978-1979 fiscal year
authorizations to expend proceeds of taxes and is adjusted annually to
reflect changes in cost of living and population and transfer of financial
responsibility from one governmental unit to another. If a California
governmental entity raises revenues beyond its appropriations limit, the
excess must be returned to the entity's taxpayers within the two subsequent
fiscal years, generally by a tax credit, refund, or temporary suspension of
tax rates or fee schedules. These spending limitations do not, however,
apply to the debt service on obligations existing or legally authorized as
of January 1, 1979, or on bonded indebtedness thereafter approved by the
voters.
In November 1988, California voters approved Proposition 98. This
initiative requires that revenues in excess of amounts permitted to be
spent, and which would otherwise be returned by revision of tax rates or
fee schedules, be transferred and allocated (up to a maximum of 4%) to the
State School Fund and be expended solely for purposes of instructional
improvement and accountability. Any funds allocated to the State school
fund shall cause the appropriation limits to be annually increased for any
such allocation made in the prior year. Prop. 98 also requires the State to
provide a minimum level of funding for public schools and community
colleges. The initiative permits the enactment of legislation, by a two-
thirds vote, to suspend the minimum funding requirement for one year.
On September 28, 1995, the California Supreme Court upheld the
constitutionality of Proposition 62. This referendum was approved by the
State's voters in 1986, but not enforced due to previous judicial
decisions. Prop. 62 requires a two-thirds voter approval for special taxes
and a new simple majority approval for general municipal purposes for
general law cities and counties . The future effect of Proposition 62 on
the financial performance of California local governments and on note and
debt security in unclear. It is possible that court challenges, based on
Prop. 62, to taxes raised or imposed after 1986, may reduce general
municipal revenues available for financing municipal operations and
services, including repayment of tax anticipation notes and other forms of
debt such as certificates of participation.
In November of 1996, the California voters approved Proposition 218, which
further limits the ability of local governments to raise certain taxes
without direct voter approval. For general taxes the locality must seek a
majority and for special taxes a two-thirds majority. The long term effects
on municipalities with respect to Prop. 218 are yet to be determined. Prop.
218 extends the voter approval to the 90 plus charter cities in California.
The effects of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remain unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future.
ECONOMIC DEVELOPMENTS
The California economy is in recovery. Statewide unemployment in 1995 was
nearly one full percentage point lower than in 1994, and the employment
gains are continuing into 1996. Major sectors of employment growth have
been high tech industries and motion picture production. Gains in these and
other sectors have more than offset continued job losses in the aerospace
and financial services industries. Other positive economic developments
include greatly increased exports and retail sales. However, there are soft
spots in the recovery. The aforementioned aerospace and defense as well as
financial sectors continue to experience restructuring. Additionally , the
housing sector remains weak .
As a result of the improvement in the overall economy, tax revenues have
been higher than budgeted. For fiscal 1995, the State's general (operating)
fund revenues were 6.7% greater than fiscal 1994. Revenues for fiscal year
1996 were $800 million more than budgeted, but operations were slim due to
higher than budgeted expenditures. Financial challenges clearly remain, as
the budget for fiscal year 1997 again reflects optimism about certain
revenue sources, most notably federal government aid for illegal
immigrants.
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 the value 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued California 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 REAL ESTATE
The Fund will not purchase or sell real estate, 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 would be invested in any one
industry, or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash, or certain money market instruments,
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.
INVESTMENTS IN ANY ONE ISSUER
With respect to securities comprising 75% of its assets, the Fund will not
invest more than 10% of its total assets in the securities of any one
issuer (except cash and cash items, repurchase agreements collateralized by
U.S. government securities, and U.S. government obligations.)
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
non-governmental user are considered to be issued solely by that user. If
in the case of an industrial development bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the guarantor,
as well as the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days after notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
Shares.
As of December 2, 1996, the following shareholder(s) of record owned 5% or
more of the outstanding shares of the California Municipal Cash Trust -
Institutional Shares: Repub & Co., Los Angeles, CA, (39.47%); Bank of
Stockton, Stockton, CA, (6.55%); SBT & Co., La Jolla, CA, (42.73%); and
Santa Monica Bank, Santa Monica, CA, (9.42%).
As of November 26, 1996, the following shareholder(s) of record owned 5% or
more of the outstanding shares of the California Municipal Cash Trust -
Institutional Service Shares: Piper Jaffray Inc., Minneapolis, MN,
(19.83%); Pacific Bank N.A., San Francisco, CA, (11.86%);First Interstate
Bank, Calabasas, CA, (9.63%); Citibank N.A., Long Island City, NY, (7.11%);
Borel Bank & Trust, San Mateo, CA, (6.09%); and Charles W. Davidson, San
Jose, CA, (5.02%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 California Municipal Cash 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 California Municipal Cash 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, 1996, 1995, and for the period from October 1,1994
to October 31, 1994, the adviser earned $501,955, $465,758, and $34,909,
respectively, of which $501,955, $402,906, and $30,860, respectively, were
waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year ended October 31, 1996,
Institutional Service Shares of the Fund paid no brokerage commissions.
During the period from March 4, 1996 (date of initial public investment) to
October 31, 1996, Institutional Shares of 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996,
1995, and for the period from October 1,1994 to October 31, 1994, the
Administrators earned $145,082, $125,000, and $10,617, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1996, the Fund paid shareholder
service fees for Institutional Shares and Institutional Service Shares in
the amounts of $21,796 and $229,181, respectively, all of which were
waived for Institutional Shares and of which $19,247 were waived for
Institutional Service Shares and the remaining balance was paid to
financial institutions.
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.
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.
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 31,1996, the yield for Institutional
Shares and Institutional Service Shares was 3.41% and 3.16%, 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 31,1996, the effective yield for
Institutional Shares and Institutional Service Shares was 3.47% and 3.21%,
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 48.9% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31,1996, the tax-equivalent yield
for Institutional Shares and Institutional Service Shares was 6.79% and
6.28%, 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 1996
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 37.30% 40.30% 45.30% 48.90%
SINGLE $1 - $24,001 - $58,151 - $121,301 - OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD
EQUIVALENT
----------------------------
1.50% 1.95% 2.39% 2.51% 2.74% 2.94%
2.00% 2.60% 3.19% 3.35% 3.66% 3.91%
2.50% 3.25% 3.99% 4.19% 4.57% 4.89%
3.00% 3.90% 4.78% 5.03% 5.48% 5.87%
3.50% 4.55% 5.58% 5.86% 6.40% 6.85%
4.00% 5.19% 6.38% 6.70% 7.31% 7.83%
4.50% 5.84% 7.18% 7.54% 8.23% 8.81%
5.00% 6.49% 7.97% 8.38% 9.14% 9.78%
5.50% 7.14% 8.77% 9.21% 10.05% 10.76%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
21.00% 37.30% 40.30% 45.30% 48.90% 48.90%
JOINT $1 - $40,101 - $96,901 - $147,701 - $263,751 OVER
RETURN 40,100 96,900 147,700 263,750 439,744 $439,744
TAX-EXEMPT
YIELD TAXABLE YIELD
EQUIVALENT
----------------------------
1.50% 1.90% 2.39% 2.51% 2.74% 2.94% 2.94%
2.00% 2.53% 3.19% 3.35% 3.66% 3.91% 3.91%
2.50% 3.16% 3.99% 4.19% 4.57% 4.89% 4.89%
3.00% 3.80% 4.78% 5.03% 5.48% 5.87% 5.87%
3.50% 4.43% 5.58% 5.86% 6.40% 6.85% 6.85%
4.00% 5.06% 6.38% 6.70% 7.31% 7.83% 7.83%
4.50% 5.70% 7.18% 7.54% 8.23% 8.81% 8.81%
5.00% 6.33% 7.97% 8.38% 9.14% 9.78% 9.78%
5.50% 6.96% 8.77% 9.21% 10.05% 10.76% 10.76%
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.
Cumulative total return reflects the total performance over a specific
period of time. For the period from March 4, 1996 (date of initial public
investment) through October 31, 1996, the cumulative total return for
Institutional Shares was 2.24%. This total return is representative of only
eights months of activity since the date of initial public investment.
For the one-year and five-year periods endedOctober 31, 1996 and for the
period from March 15, 1989 (date of initial public offering) through
October 31, 1996, the average annual total returns were 3.22%, 2.69% and
3.48%, respectively, for Institutional Service Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR , Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
The Cash II Shares of New York Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual
fund). The Fund invests primarily in short-term New York municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of New York, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and personal income taxes
imposed by New York State and New York municipalities consistent with
stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
CASH II SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
New York Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
Management of the Fund 7
Distribution of Cash II Series 8
Administration of the Fund 9
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
TAX INFORMATION 12
Federal Income Tax 12
State and Local Tax 13
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 14
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 15
FINANCIAL STATEMENTS 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
30
ADDRESSES 31
</TABLE>
SUMMARY OF FUND EXPENSES
CASH II SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.29%
12b-1 Fee (after waiver)(2) 0.00%
Total Other Expenses 0.42%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 0.71%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the
12b-1 fee. The distributor can terminate this voluntary waiver at any time
at its sole discretion. The maximum 12b-1 fee is 0.25%.
(3) The Total Operating Expenses would have been 1.07% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
12b-1 fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Cash II Shares of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period $7 $23 $40 $88
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
NEW YORK MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993** 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.05% 3.37% 2.15% 1.98% 2.86% 2.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71% 0.71% 0.71% 0.71% 0.73% 0.46%*
Net investment income 3.02% 3.20% 2.19% 1.96% 2.46% 4.08%*
Expense waiver/reimbursement(c) 0.36% 0.36% 0.21% 0.17% -- --
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $25,571 $14,439 $134,051 $58,884 $4,641 $56
</TABLE>
* Computed on an annualized basis.
** Prior to November 9, 1992, the Fund provided three classes of shares.
(a) Reflects operations for the period from April 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Cash II Shares and Institutional Service Shares. This prospectus
relates only to Cash II Shares of the Fund, which are designed to provide a
cash management vehicle for certain customers of financial institutions
which would include corporations and municipalities, as well as larger
individual accounts, seeking a high level of cash management services from
the participating institution. The Fund may not be a suitable investment for
retirement plans or for non-New York taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $25,000
over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by New York State
and New York municipalities consistent with stability of principal. This
investment 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 New York State and New York municipalities.
(Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 New York and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and New York and the personal income taxes
imposed by New York State and New York municipalities ("New York Municipal
Securities"). Examples of New York Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 New York
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 New York 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain New
York Municipal Securities is subject to the federal alternative minimum tax.
NEW YORK MUNICIPAL SECURITIES
New York Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
New York Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of New York 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 New York Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size of the particular offering; the
maturity of the obligations; and the rating of the issue. The ability of the
Fund to achieve its investment objective also depends on the continuing
ability of the issuers of New York Municipal Securities and 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 New York Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in New York 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 New York 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 New York 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. Due to these risk
considerations, the Fund's concentration in New York Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of total assets to secure such
borrowings. These investment limitations cannot be changed without
shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II Shares
of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of up to .30% of the average daily net
asset value of the Fund. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset
value of its shares to obtain certain personal services for shareholders and
to maintain shareholder accounts. 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 may receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate as which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Cash II Shares from the value of Fund assets attributable to Cash II
Shares, and dividing the remainder by the number of Cash II 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, 3:00 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $25,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the
Fund before 3:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) in order to begin earning dividends that
same day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust --Cash II
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on
holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the
telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: New York Municipal Cash
Trust -- Cash II Shares. Please include an account number on the check.
Orders by mail are considered received when payment by check is converted
into federal funds (normally the business day after the check is received),
and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Services Company
receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Under
limited circumstances, arrangements may be made with the distributor for
same-day payment of proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that method
of payment has cleared. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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, within the limits of its investment
policies, 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
New York. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
NEW YORK TAXES. Under existing New York laws, distributions made by the Fund
will not be subject to New York State or New York City personal income taxes
to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent interest income attributable
to obligations issued by the State of New York and its political
subdivisions as well as certain other obligations, the interest on which is
exempt from New York State and New York City personal income taxes, such as,
for example, certain obligations of the Commonwealth of Puerto Rico.
Conversely, to the extent that distributions made by the Fund are derived
from other types of obligations, such distributions will be subject to New
York State and New York City personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that
will be exempt from New York State and New York City personal income taxes.
However, the Fund will report to shareholders at least annually what
percentage of the dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business taxes to the same extent that they are exempt from the New York
City personal income taxes.
Dividends paid by the Fund are not excluded from net income in determining
New York State or New York City franchise taxes on corporations or financial
institutions.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares that are sold primarily to banks and other institutions that hold
assets for individuals, trusts, estates, or partnerships. Institutional
Service Shares are sold at net asset value and are subject to a Rule 12b-1
Plan and a Shareholder Services Agreement. Investments in Institutional
Service Shares are subject to a minimum initial investment of $25,000 within
a 90-day period.
Cash II Shares and Institutional Service Shares are subject to certain of
the same expenses. Expense differences, however, between Cash II Shares and
Institutional Service Shares may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
NEW YORK MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993* 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.03 0.04 0.02 0.02 0.03 0.04 0.05 0.06 0.05 0.04
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.03) (0.04) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.05) (0.04)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 3.24% 3.56% 2.35% 2.16% 3.01% 4.59% 5.51% 5.70% 4.66% 3.90%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.53% 0.54% 0.52% 0.54% 0.57% 0.52% 0.54% 0.55% 0.51% 0.47%
Net investment income 3.18% 3.49% 2.31% 2.14% 2.99% 4.48% 5.36% 5.56% 4.57% 3.81%
Expense waiver/
reimbursement(b) 0.54% 0.53% 0.13% 0.17% -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $305,533 $276,149 $236,580 $274,357 $164,492 $191,616 $197,213 $245,542 $212,786 $141,040
</TABLE>
* Prior to November 9, 1992, the Fund provided three classes of shares.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- 101.4%
NEW YORK -- 101.4%
$ 2,500,000 Albany, NY IDA, (Series 1995) Weekly VRDNs (Davies Office
Refurbishing, Inc. Project)/(Marine Midland Bank N.A., Buffalo,
NY LOC) $ 2,500,000
2,480,000 Alden Central School District, NY, UT GO, 4.25% BANs, 6/24/1997 2,485,444
900,000 Babylon, NY IDA, (1994 Series) Weekly VRDNs (J. D'Addario
& Company, Inc. Project)/(National Westminster Bank, PLC,
London LOC) 900,000
3,800,000 Brookhaven-Comsewogue Union Free School District, NY, 4.00%
TANs, 6/30/1997 3,804,788
10,000,000 Buffalo, NY, Custodial Receipts (2nd Series 1996-H), 5.00% BANs
(State Street Bank and Trust Co. LOC), 3/6/1997 10,037,016
3,800,000 Canisteo Central School District, NY, 4.125% BANs, 4/30/1997 3,805,322
1,555,000 Cattaraugus County, NY IDA, (Series 1996A) Weekly VRDNs
(Gier's Farm Service, Inc. Project)/(Key Bank of New York LOC) 1,555,000
2,550,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/
(KeyBank, N.A. LOC) 2,550,000
3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine
Corp.)/(Wells Fargo Bank, N.A. LOC) 3,900,000
5,000,000 Chautauqua County, NY, 3.60% TANs, 12/20/1996 5,001,303
3,400,000 Clyde-Savannah Central School District, NY, 4.375% BANs,
6/27/1997 3,405,847
1,060,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 1,060,000
765,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (13 Green M-1 Drive
Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) 765,000
2,220,000 Colonie, NY, (Series 1996B), 4.00% BANs, 4/18/1997 2,222,459
7,500,000 Deer Park Union Free School District, NY, 4.50% BANs, 10/3/1997 7,538,525
5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Servotronics, Inc. Project)/(Fleet Bank of New York LOC) 5,000,000
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 4,500,000 Florida Union Free School District, NY, 4.125% BANs, 12/5/1996 $ 4,501,509
1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs
(KES Chateaugay)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,800,000
3,263,366 Gloversville, NY, 4.25% BANs, 12/27/1996 3,265,769
1,500,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern
Industrial Park, Inc.)/(Fleet Bank of New York LOC) 1,500,000
4,420,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's
Kitchen)/(Bank of New York, New York LOC) 4,420,000
2,005,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison,
NY Upstate Metals)/(Fleet Bank of New York LOC) 2,005,000
15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust
Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 15,000,000
4,900,000 (b)New York City Housing Development Corp., Municipal Securities
Trust Receipts (Series 1996-CMC1A) Weekly VRDNs (Chase
Manhattan Corp. LIQ) 4,900,000
4,900,000 (b)New York City Housing Development Corp., Municipal Securities
Trust Receipts (Series 1996-CMC1B) Weekly VRDNs (Chase
Manhattan Corp. LIQ) 4,900,000
1,500,000 New York City Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds (Series 1995 A) Daily VRDNs (FGIC INS)/
(FGIC Securities Purchase, Inc. LIQ) 1,500,000
1,500,000 New York City, NY IDA Daily VRDNs (Japan Airlines Co.)/(Morgan
Guaranty Trust Co., New York LOC) 1,500,000
216,667 New York City, NY IDA Weekly VRDNs (David Rosen Bakers
Supply)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan
Bank N.A., New York LOC) 216,667
31,562,850 New York City, NY IDA, (Series 1995A) Weekly VRDNs (Brooklyn
Navy Yard Cogeneration Partners, L.P. Project)/(Bank of America NT
and SA, San Francisco LOC) 31,562,850
5,000,000 New York City, NY, (Series A), 4.50% TANs, 2/12/1997 5,009,877
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 5,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia,
Toronto, Canadian Imperial Bank of Commerce, Toronto and
Commerzbank AG, Frankfurt LOCs), 6/30/1997 $ 5,022,496
4,600,000 New York City, NY, 3.75% TOBs (FSA INS)/(Citibank NA, New York
LIQ), Optional Tender 2/15/1997 4,600,000
10,900,000 New York City, NY, UT GO Fiscal 1994 (Series H-3), 3.65% CP
(FSA INS)/(State Street Bank and Trust Co. LIQ), Mandatory
Tender 11/12/1996 10,900,000
5,475,000 (b)New York State Dormitory Authority, PA-60 (Series 1993) Weekly
VRDNs (Rochester General Hospital)/(FHA INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 5,475,000
3,000,000 New York State Energy Research & Development Authority,
(Series 1993A) Weekly VRDNs (Long Island Lighting Co.)/
(Toronto-Dominion Bank LOC) 3,000,000
8,000,000 New York State Energy Research & Development Authority, PCR
Bonds (Series B) Daily VRDNs (Niagara Mohawk Power Corp.)/
(Morgan Guaranty Trust Co., New York LOC) 8,000,000
6,020,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/
(Chase Manhattan Bank N.A., New York LOC) 6,020,000
4,000,000 New York State HFA, Housing Revenue Bonds (1985 Series A) Weekly
VRDNs (Liberty View Apartments)/(Chase Manhattan Bank N.A.,
New York LOC) 4,000,000
1,210,000 New York State Job Development Authority Weekly VRDNs
(Sumitomo Bank Ltd., Osaka LOC) 1,210,000
1,500,000 New York State Job Development Authority Weekly VRDNs
(Sumitomo Bank Ltd., Osaka LOC) 1,500,000
4,580,000 (b)New York State Medical Care Facilities Finance Agency, Hospital &
Nursing Home Mortgage Revenue Bonds (1994 Series C) Weekly
VRDNs (FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,580,000
3,700,000 (b)New York State Mortgage Agency, (Series PA-29) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 3,700,000
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 4,720,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services,
Inc. LIQ) $ 4,720,000
7,270,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds (Series PT-15B) Weekly VRDNs (Commerzbank AG,
Frankfurt LIQ) 7,270,000
3,660,000 New York State, (Series A), 4.50% Bonds, 7/15/1997 3,675,636
6,500,000 Niagara County, NY IDA Weekly VRDNs (Allegheny Ludlum Corp.)/
(PNC Bank, N.A. LOC) 6,500,000
1,400,000 Norwich, NY, 4.375% BANs, 9/19/1997 1,403,257
3,000,000 Oneida County, NY, Custodial Receipts (2nd Series 1996-D), 4.25%
BANs (State Street Bank and Trust Co. LOC), 5/9/1997 3,006,653
610,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 610,000
910,000 Onondaga County, NY IDA, (Series 1987) Weekly VRDNs (Southern
Container Corp.)/(Chase Manhattan Bank N.A., New York LOC) 910,000
1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000
1,450,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye
Corrugated)/(National City Bank, Cleveland, OH LOC) 1,450,000
5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/
(Credit Lyonnais, Paris LOC) 5,700,000
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam
Industrial Park)/(Fleet Bank of New York LOC) 1,000,000
497,529 Schenectady, NY IDA Weekly VRDNs (McClellan Street Associates)/
(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A.,
New York LOC) 497,529
1,700,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs (Fortitech
Holding Corporation Project)/(Fleet Bank of New York LOC) 1,700,000
3,000,000 South Country Central School District, NY, 4.50% TANs, 6/25/1997 3,008,380
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 3,200,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy
Conveyor Corporation Project)/(Chase Manhattan Bank N.A.,
New York LOC) $ 3,200,000
2,400,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/
(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A.,
New York LOC) 2,400,000
900,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 900,000
1,800,000 Suffolk County, NY IDA, 5.363% TOBs (Grainger (W.W.), Inc.),
Optional Tender 12/1/1996 1,800,000
11,299,000 Syracuse, NY, (Series 1995), 4.00% BANs, 12/20/1996 11,304,248
2,200,000 Tompkins County, NY, (Series A), 4.00% BANs, 4/11/1997 2,202,804
9,000,000 Ulster County, NY, Custodial Receipt (1996 Series A), 4.25% TANs
(State Street Bank and Trust Co. LOC), 3/26/1997 9,017,091
5,000,000 (b)VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City
Municipal Water Finance Authority)/(MBIA INS)/(Hong Kong &
Shanghai Banking Corp. LIQ) 5,000,000
9,900,000 (b)VRDC/IVRC Trust, (Series 1993G) Weekly VRDNs (St. Lukes
Roosevelt Hospital Center)/(FHA INS)/(Hong Kong & Shanghai
Banking Corp. LIQ) 9,900,000
7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Spence Engineering Co.)/(First Union National Bank, Charlotte,
N.C. LOC) 7,500,000
5,280,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill
Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 5,280,000
4,000,000 Westhampton Beach Union Free School District, NY, 4.00% TANs,
6/27/1997 4,006,240
1,290,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass
Container)/(Fleet Bank of New York LOC) 1,290,000
2,200,000 Yonkers, NY IDA, (Series 1992A) Weekly VRDNs (Consumers Union
Facility)/(Industrial Bank of Japan Ltd., Tokyo LOC) 2,200,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $335,796,710
</TABLE>
At October 31, 1996, 41.4% of the total investments at market value were
subject to alternative minimum tax.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSRO's") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<C> <C>
97.34% 2.66%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $50,455,000 which represents 15.2% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($331,104,268) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDRB -- Industrial Development Revenue Bond
INS -- Insured
LIQ -- Liquidity Agreement
LOCs -- Letter(s) of Credit
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
RANs -- Revenue Anticipation Notes
SA -- Support Agreement
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 335,796,710
Cash 286,594
Income receivable 2,698,212
Receivable for shares sold 887,032
Total assets 339,668,548
LIABILITIES:
Payable for investments purchased $ 7,811,028
Income distribution payable 673,724
Accrued expenses 79,528
Total liabilities 8,564,280
NET ASSETS for 331,104,268 shares outstanding $331,104,268
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$305,533,428 / 305,533,428 shares outstanding $1.00
CASH II SHARES:
$25,570,840 / 25,570,840 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 12,055,066
EXPENSES:
Investment advisory fee $1,298,934
Administrative personnel and services fee 245,547
Custodian fees 54,459
Transfer and dividend disbursing agent fees and expenses 58,757
Directors'/Trustees' fees 4,397
Auditing fees 13,561
Legal fees 5,282
Portfolio accounting fees 88,338
Distribution services fee -- Institutional Service Shares 750,832
Distribution services fee -- Cash II Shares 61,083
Shareholder services fee -- Institutional Service Shares 751,279
Shareholder services fee -- Cash II Shares 61,083
Share registration costs 32,037
Printing and postage 27,219
Insurance premiums 5,255
Taxes 266
Miscellaneous 2,848
Total expenses 3,461,177
Waivers --
Waiver of investment advisory fee $ (343,123)
Waiver of distribution services fee -- Institutional Service Shares (750,832)
Waiver of distribution services fee -- Cash II Shares (61,082)
Waiver of shareholder services fee -- Institutional Service Shares (540,243)
Total waivers (1,695,280)
Net expenses 1,765,897
Net investment income 10,289,169
Net realized gain on investments 5,609
Change in net assets resulting from operations $10,294,778
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 10,289,169 $ 11,498,874
Net realized gain (loss) on investments 5,609 12,000
Change in net assets resulting from operations 10,294,778 11,510,874
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income:
Institutional Service Shares (9,551,350) (9,657,797)
Cash II Shares (737,819) (1,841,077)
Change in net assets resulting from distributions to
shareholders (10,289,169) (11,498,874)
SHARE TRANSACTIONS --
Proceeds from sale of shares 1,133,036,436 1,236,075,244
Net asset value of shares issued to shareholders in payment
of distributions declared 2,199,491 3,314,165
Cost of shares redeemed (1,094,725,252) (1,319,444,545)
Change in net assets resulting from share transactions 40,510,675 (80,055,136)
Change in net assets 40,516,284 (80,043,136)
NET ASSETS:
Beginning of period 290,587,984 370,631,120
End of period $ 331,104,268 $ 290,587,984
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New York Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The
investment objective of the Fund is current income exempt from federal
regular income tax, the personal income taxes imposed by the New York State
and New York municipalities consistent with stability of principal. The Fund
offers two classes of shares: Institutional Service Shares and Cash II
Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees
("Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <S> <C>
New York City Housing Development
Corp (Series 1996-CMC1A) September 11, 1996 $ 4,900,000
New York City Housing Development
Corp. (Series 1996-CMC1B) September 11, 1996 4,900,000
New York State Dormitory Authority,
PA-60 March 13, 1995 5,475,000
New York State Medical Care Facilities
Finance Agency August 22, 1996 4,580,000
New York State Mortgage Agency
(Series PA-29) April 3, 1995 3,700,000
New York State Mortgage Agency
(PA-87) July 5, 1995 4,720,000
New York State Mortgage Agency
(Series PT-15B) December 29, 1995-
May 30, 1996 7,270,000
VRDC/IVRC Trust (Series 1992A) July 5, 1995 5,000,000
VRDC/IVRC Trust (Series 1993G) August 14, 1996-
October 25, 1996 9,900,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$331,104,268.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 990,741,683 1,002,966,036
Shares issued to shareholders in payment of distributions declared 1,624,496 1,484,402
Shares redeemed (962,988,268) (964,892,684)
Net change resulting from Institutional Service Share transactions 29,377,911 39,557,754
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
<S> <C> <C>
CASH II SHARES SHARES SHARES
Shares sold 142,294,754 233,109,208
Shares issued to shareholders in payment of distributions declared 574,995 1,829,763
Shares redeemed (131,736,985) (354,551,861)
Net change resulting from Cash II Share transactions 11,132,764 (119,612,890)
Net change resulting from share transactions 40,510,675 (80,055,136)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will reimburse Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Institutional Service Shares and Cash II
Shares. The Plan provides that the Fund may incur distribution expenses up
to 0.25% of the average daily net assets of the Institutional Service Shares
and Cash II Shares, annually, to reimburse FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $479,312,850 and $413,930,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
CONCENTRATION OF CREDIT RISK -- Since the Fund invests a substantial portion
of its assets in issuers located in one state, it will be more susceptible
to factors adversely affecting issuers of that state than would be a
comparable tax-exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors, at October 31, 1996,
60% of the securities in the portfolio of investments are backed by letters
of credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The percentage of investments insured by or
supported (backed) by a letter of credit from any one institution or agency
did not exceed 9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(New York Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of New
York Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
of investments, as of October 31, 1996, the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights (see pages 2 and 15 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
New York Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
New York Municipal Cash Trust
Cash II 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
Federated Investors
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229733
G00208-02 (12/96)
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of New York Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term New York
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of New
York, or its political subdivisions and financing authorities, but which
provide current income exempt from federal regular income tax and personal
income taxes imposed by New York State and New York municipalities
consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
New York Municipal Securities 6
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
TAX INFORMATION 12
Federal Income Tax 12
State and Local Tax 13
OTHER CLASSES OF SHARES 14
PERFORMANCE INFORMATION 14
FINANCIAL HIGHLIGHTS -- CASH II SHARES
15
FINANCIAL STATEMENTS 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
30
ADDRESSES 31
</TABLE>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.29%
12b-1 Fee (after waiver)(2) 0.00%
Total Other Expenses 0.24%
Shareholder Services Fee (after waiver)(3) 0.07%
Total Operating Expenses(4) 0.53%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the
12b-1 fee. The distributor can terminate this voluntary waiver at any time
at its sole discretion. The maximum 12b-1 fee is 0.25%.
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at
its sole discretion. The maximum shareholder services fee is 0.25%.
(4) The Total Operating Expenses would have been 1.07% absent the voluntary
waivers of portions of the management fee and shareholder services fee and
the voluntary waiver of the 12b-1 fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Institutional Service
Shares of the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Fund
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period $5 $17 $30 $66
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
NEW YORK MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993* 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.03 0.04 0.02 0.02 0.03 0.04 0.05 0.06 0.05 0.04
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.03) (0.04) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.05) (0.04)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 3.24% 3.56% 2.35% 2.16% 3.01% 4.59% 5.51% 5.70% 4.66% 3.90%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.53% 0.54% 0.52% 0.54% 0.57% 0.52% 0.54% 0.55% 0.51% 0.47%
Net investment income 3.18% 3.49% 2.31% 2.14% 2.99% 4.48% 5.36% 5.56% 4.57% 3.81%
Expense waiver/
reimbursement(b) 0.54% 0.53% 0.13% 0.17% -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $305,533 $276,149 $236,580 $274,357 $164,492 $191,616 $197,213 $245,542 $212,786 $141,040
</TABLE>
* Prior to November 9, 1992, the Fund provided three classes of shares.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Service Shares and Cash II Shares. This prospectus
relates only to Institutional Service Shares of the Fund, which are designed
primarily for banks and other institutions that hold assets for individuals,
trust, estates, or partnerships, as a convenient means of accumulating an
interest in a professionally managed portfolio investing in short-term
municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-New York taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $25,000
over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and personal income taxes imposed by New York State and
New York municipalities 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 personal
income taxes imposed by New York State and New York municipalities. (Federal
regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
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 New York and its political subdivisions and
financing authorities, and obligations of other states, territories, and
possessions of the United States, including the District of Columbia, and
any political subdivision or financing authority of any of these, the income
from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax and New and personal income taxes imposed by New
York State and New York municipalities ("New York Municipal Securities").
Examples of New York Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 New York
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 New York 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain New
York Municipal Securities is subject to the federal alternative minimum tax.
NEW YORK MUNICIPAL SECURITIES
New York Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
New York Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of New York 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 New York Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market
and of the municipal bond market; the size of the particular offering; the
maturity of the obligations; and the rating of the issue. The ability of the
Fund to achieve its investment objective also depends on the continuing
ability of the issuers of New York Municipal Securities and 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 New York Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in New York 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 New York 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 New York 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. Due to these risk
considerations, the Fund's concentration in New York Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of total assets to secure such
borrowings. These investment limitations cannot be changed without
shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of up to .30% of the average daily net
asset value of the Fund. The distributor may select financial institutions
such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset
value of its shares to obtain certain personal services for shareholders and
to maintain shareholder accounts. 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 may receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund 's investment adviser or
its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate as which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Institutional Service Shares from the value of Fund assets attributable
to Institutional Service Shares, and dividing the remainder by the number of
Institutional Service 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, 3:00 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $25,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the
Fund before 3:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) in order to begin earning dividends that
same day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust
- --Institutional Service Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions
on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: New York Municipal Cash
Trust -- Institutional Service Shares. Please include an account number on
the check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Services Company
receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Under
limited circumstances, arrangements may be made with the distributor for
same-day payment of proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that method
of payment has cleared. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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, within the limits of its investment
policies, 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
New York. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
NEW YORK TAXES. Under existing New York laws, distributions made by the Fund
will not be subject to New York State or New York City personal income taxes
to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent interest income attributable
to obligations issued by the State of New York and its political
subdivisions as well as certain other obligations, the interest on which is
exempt from New York State and New York City personal income taxes, such as,
for example, certain obligations of the Commonwealth of Puerto Rico.
Conversely, to the extent that distributions made by the Fund are derived
from other types of obligations, such distributions will be subject to New
York State and New York City personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that
will be exempt from New York State and New York City personal income taxes.
However, the Fund will report to shareholders at least annually what
percentage of the dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business taxes to the same extent that they are exempt from the New York
City personal income taxes.
Dividends paid by the Fund are not excluded from net income in determining
New York State or New York City franchise taxes on corporations or financial
institutions.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Cash II Shares which are
designed to provide a cash management vehicle for certain customers of
financial institutions which would include corporations and municipalities,
as well as larger individual accounts, seeking a high level of cash
management services from the participating institution. Cash II Shares are
sold at net asset value and are subject to a Rule 12b-1 Plan and a
Shareholder Services Agreement. Investments in Cash II Shares are subject to
a minimum initial investment of $25,000 within a 90-day period.
Cash II Shares and Institutional Service Shares are subject to certain of
the same expenses. Expense differences, however, between Cash II Shares and
Institutional Service Shares may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
NEW YORK MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
30.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993** 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.05% 3.37% 2.15% 1.98% 2.86% 2.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71% 0.71% 0.71% 0.71% 0.73% 0.46%*
Net investment income 3.02% 3.20% 2.19% 1.96% 2.46% 4.08%*
Expense waiver/reimbursement(c) 0.36% 0.36% 0.21% 0.17% -- --
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $25,571 $14,439 $134,051 $58,884 $4,641 $56
</TABLE>
* Computed on an annualized basis.
** Prior to November 9, 1992, the Fund provided three classes of shares.
(a) Reflects operations for the period from April 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- 101.4%
NEW YORK -- 101.4%
$ 2,500,000 Albany, NY IDA, (Series 1995) Weekly VRDNs (Davies Office
Refurbishing, Inc. Project)/(Marine Midland Bank N.A., Buffalo,
NY LOC) $ 2,500,000
2,480,000 Alden Central School District, NY, UT GO, 4.25% BANs, 6/24/1997 2,485,444
900,000 Babylon, NY IDA, (1994 Series) Weekly VRDNs (J. D'Addario
& Company, Inc. Project)/(National Westminster Bank, PLC,
London LOC) 900,000
3,800,000 Brookhaven-Comsewogue Union Free School District, NY, 4.00%
TANs, 6/30/1997 3,804,788
10,000,000 Buffalo, NY, Custodial Receipts (2nd Series 1996-H), 5.00% BANs
(State Street Bank and Trust Co. LOC), 3/6/1997 10,037,016
3,800,000 Canisteo Central School District, NY, 4.125% BANs, 4/30/1997 3,805,322
1,555,000 Cattaraugus County, NY IDA, (Series 1996A) Weekly VRDNs
(Gier's Farm Service, Inc. Project)/(Key Bank of New York LOC) 1,555,000
2,550,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/
(KeyBank, N.A. LOC) 2,550,000
3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine
Corp.)/(Wells Fargo Bank, N.A. LOC) 3,900,000
5,000,000 Chautauqua County, NY, 3.60% TANs, 12/20/1996 5,001,303
3,400,000 Clyde-Savannah Central School District, NY, 4.375% BANs,
6/27/1997 3,405,847
1,060,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 1,060,000
765,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (13 Green M-1 Drive
Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) 765,000
2,220,000 Colonie, NY, (Series 1996B), 4.00% BANs, 4/18/1997 2,222,459
7,500,000 Deer Park Union Free School District, NY, 4.50% BANs, 10/3/1997 7,538,525
5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Servotronics, Inc. Project)/(Fleet Bank of New York LOC) 5,000,000
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 4,500,000 Florida Union Free School District, NY, 4.125% BANs, 12/5/1996 $ 4,501,509
1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs
(KES Chateaugay)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,800,000
3,263,366 Gloversville, NY, 4.25% BANs, 12/27/1996 3,265,769
1,500,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern
Industrial Park, Inc.)/(Fleet Bank of New York LOC) 1,500,000
4,420,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's
Kitchen)/(Bank of New York, New York LOC) 4,420,000
2,005,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison,
NY Upstate Metals)/(Fleet Bank of New York LOC) 2,005,000
15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust
Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 15,000,000
4,900,000 (b)New York City Housing Development Corp., Municipal Securities
Trust Receipts (Series 1996-CMC1A) Weekly VRDNs (Chase
Manhattan Corp. LIQ) 4,900,000
4,900,000 (b)New York City Housing Development Corp., Municipal Securities
Trust Receipts (Series 1996-CMC1B) Weekly VRDNs (Chase
Manhattan Corp. LIQ) 4,900,000
1,500,000 New York City Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds (Series 1995 A) Daily VRDNs (FGIC INS)/
(FGIC Securities Purchase, Inc. LIQ) 1,500,000
1,500,000 New York City, NY IDA Daily VRDNs (Japan Airlines Co.)/(Morgan
Guaranty Trust Co., New York LOC) 1,500,000
216,667 New York City, NY IDA Weekly VRDNs (David Rosen Bakers
Supply)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan
Bank N.A., New York LOC) 216,667
31,562,850 New York City, NY IDA, (Series 1995A) Weekly VRDNs (Brooklyn
Navy Yard Cogeneration Partners, L.P. Project)/(Bank of America NT
and SA, San Francisco LOC) 31,562,850
5,000,000 New York City, NY, (Series A), 4.50% TANs, 2/12/1997 5,009,877
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 5,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia,
Toronto, Canadian Imperial Bank of Commerce, Toronto and
Commerzbank AG, Frankfurt LOCs), 6/30/1997 $ 5,022,496
4,600,000 New York City, NY, 3.75% TOBs (FSA INS)/(Citibank NA, New York
LIQ), Optional Tender 2/15/1997 4,600,000
10,900,000 New York City, NY, UT GO Fiscal 1994 (Series H-3), 3.65% CP
(FSA INS)/(State Street Bank and Trust Co. LIQ), Mandatory
Tender 11/12/1996 10,900,000
5,475,000 (b)New York State Dormitory Authority, PA-60 (Series 1993) Weekly
VRDNs (Rochester General Hospital)/(FHA INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 5,475,000
3,000,000 New York State Energy Research & Development Authority,
(Series 1993A) Weekly VRDNs (Long Island Lighting Co.)/
(Toronto-Dominion Bank LOC) 3,000,000
8,000,000 New York State Energy Research & Development Authority, PCR
Bonds (Series B) Daily VRDNs (Niagara Mohawk Power Corp.)/
(Morgan Guaranty Trust Co., New York LOC) 8,000,000
6,020,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/
(Chase Manhattan Bank N.A., New York LOC) 6,020,000
4,000,000 New York State HFA, Housing Revenue Bonds (1985 Series A) Weekly
VRDNs (Liberty View Apartments)/(Chase Manhattan Bank N.A.,
New York LOC) 4,000,000
1,210,000 New York State Job Development Authority Weekly VRDNs
(Sumitomo Bank Ltd., Osaka LOC) 1,210,000
1,500,000 New York State Job Development Authority Weekly VRDNs
(Sumitomo Bank Ltd., Osaka LOC) 1,500,000
4,580,000 (b)New York State Medical Care Facilities Finance Agency, Hospital &
Nursing Home Mortgage Revenue Bonds (1994 Series C) Weekly
VRDNs (FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,580,000
3,700,000 (b)New York State Mortgage Agency, (Series PA-29) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 3,700,000
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 4,720,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services,
Inc. LIQ) $ 4,720,000
7,270,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue
Bonds (Series PT-15B) Weekly VRDNs (Commerzbank AG,
Frankfurt LIQ) 7,270,000
3,660,000 New York State, (Series A), 4.50% Bonds, 7/15/1997 3,675,636
6,500,000 Niagara County, NY IDA Weekly VRDNs (Allegheny Ludlum Corp.)/
(PNC Bank, N.A. LOC) 6,500,000
1,400,000 Norwich, NY, 4.375% BANs, 9/19/1997 1,403,257
3,000,000 Oneida County, NY, Custodial Receipts (2nd Series 1996-D), 4.25%
BANs (State Street Bank and Trust Co. LOC), 5/9/1997 3,006,653
610,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 610,000
910,000 Onondaga County, NY IDA, (Series 1987) Weekly VRDNs (Southern
Container Corp.)/(Chase Manhattan Bank N.A., New York LOC) 910,000
1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000
1,450,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye
Corrugated)/(National City Bank, Cleveland, OH LOC) 1,450,000
5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/
(Credit Lyonnais, Paris LOC) 5,700,000
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam
Industrial Park)/(Fleet Bank of New York LOC) 1,000,000
497,529 Schenectady, NY IDA Weekly VRDNs (McClellan Street Associates)/
(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A.,
New York LOC) 497,529
1,700,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs (Fortitech
Holding Corporation Project)/(Fleet Bank of New York LOC) 1,700,000
3,000,000 South Country Central School District, NY, 4.50% TANs, 6/25/1997 3,008,380
</TABLE>
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
NEW YORK -- CONTINUED
$ 3,200,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy
Conveyor Corporation Project)/(Chase Manhattan Bank N.A.,
New York LOC) $ 3,200,000
2,400,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/
(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A.,
New York LOC) 2,400,000
900,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/
(Marine Midland Bank N.A., Buffalo, NY LOC) 900,000
1,800,000 Suffolk County, NY IDA, 5.363% TOBs (Grainger (W.W.), Inc.),
Optional Tender 12/1/1996 1,800,000
11,299,000 Syracuse, NY, (Series 1995), 4.00% BANs, 12/20/1996 11,304,248
2,200,000 Tompkins County, NY, (Series A), 4.00% BANs, 4/11/1997 2,202,804
9,000,000 Ulster County, NY, Custodial Receipt (1996 Series A), 4.25% TANs
(State Street Bank and Trust Co. LOC), 3/26/1997 9,017,091
5,000,000 (b)VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City
Municipal Water Finance Authority)/(MBIA INS)/(Hong Kong &
Shanghai Banking Corp. LIQ) 5,000,000
9,900,000 (b)VRDC/IVRC Trust, (Series 1993G) Weekly VRDNs (St. Lukes
Roosevelt Hospital Center)/(FHA INS)/(Hong Kong & Shanghai
Banking Corp. LIQ) 9,900,000
7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs
(Spence Engineering Co.)/(First Union National Bank, Charlotte,
N.C. LOC) 7,500,000
5,280,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill
Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 5,280,000
4,000,000 Westhampton Beach Union Free School District, NY, 4.00% TANs,
6/27/1997 4,006,240
1,290,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass
Container)/(Fleet Bank of New York LOC) 1,290,000
2,200,000 Yonkers, NY IDA, (Series 1992A) Weekly VRDNs (Consumers Union
Facility)/(Industrial Bank of Japan Ltd., Tokyo LOC) 2,200,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $335,796,710
</TABLE>
At October 31, 1996, 41.4% of the total investments at market value were
subject to alternative minimum tax.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSRO's") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<C> <C>
97.34% 2.66%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $50,455,000 which represents 15.2% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($331,104,268) at October 31, 1996.
The following acronyms are used throughout this portfolio:
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDRB -- Industrial Development Revenue Bond
INS -- Insured
LIQ -- Liquidity Agreement
LOCs -- Letter(s) of Credit
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
RANs -- Revenue Anticipation Notes
SA -- Support Agreement
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 335,796,710
Cash 286,594
Income receivable 2,698,212
Receivable for shares sold 887,032
Total assets 339,668,548
LIABILITIES:
Payable for investments purchased $ 7,811,028
Income distribution payable 673,724
Accrued expenses 79,528
Total liabilities 8,564,280
NET ASSETS for 331,104,268 shares outstanding $331,104,268
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$305,533,428 / 305,533,428 shares outstanding $1.00
CASH II SHARES:
$25,570,840 / 25,570,840 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 12,055,066
EXPENSES:
Investment advisory fee $1,298,934
Administrative personnel and services fee 245,547
Custodian fees 54,459
Transfer and dividend disbursing agent fees and expenses 58,757
Directors'/Trustees' fees 4,397
Auditing fees 13,561
Legal fees 5,282
Portfolio accounting fees 88,338
Distribution services fee -- Institutional Service Shares 750,832
Distribution services fee -- Cash II Shares 61,083
Shareholder services fee -- Institutional Service Shares 751,279
Shareholder services fee -- Cash II Shares 61,083
Share registration costs 32,037
Printing and postage 27,219
Insurance premiums 5,255
Taxes 266
Miscellaneous 2,848
Total expenses 3,461,177
Waivers --
Waiver of investment advisory fee $ (343,123)
Waiver of distribution services fee -- Institutional Service Shares (750,832)
Waiver of distribution services fee -- Cash II Shares (61,082)
Waiver of shareholder services fee -- Institutional Service Shares (540,243)
Total waivers (1,695,280)
Net expenses 1,765,897
Net investment income 10,289,169
Net realized gain on investments 5,609
Change in net assets resulting from operations $10,294,778
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 10,289,169 $ 11,498,874
Net realized gain (loss) on investments 5,609 12,000
Change in net assets resulting from operations 10,294,778 11,510,874
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income:
Institutional Service Shares (9,551,350) (9,657,797)
Cash II Shares (737,819) (1,841,077)
Change in net assets resulting from distributions to
shareholders (10,289,169) (11,498,874)
SHARE TRANSACTIONS --
Proceeds from sale of shares 1,133,036,436 1,236,075,244
Net asset value of shares issued to shareholders in payment
of distributions declared 2,199,491 3,314,165
Cost of shares redeemed (1,094,725,252) (1,319,444,545)
Change in net assets resulting from share transactions 40,510,675 (80,055,136)
Change in net assets 40,516,284 (80,043,136)
NET ASSETS:
Beginning of period 290,587,984 370,631,120
End of period $ 331,104,268 $ 290,587,984
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NEW YORK MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New York Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The
investment objective of the Fund is current income exempt from federal
regular income tax, the personal income taxes imposed by the New York State
and New York municipalities consistent with stability of principal. The Fund
offers two classes of shares: Institutional Service Shares and Cash II
Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees
("Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance
with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <S> <C>
New York City Housing Development
Corp (Series 1996-CMC1A) September 11, 1996 $ 4,900,000
New York City Housing Development
Corp. (Series 1996-CMC1B) September 11, 1996 4,900,000
New York State Dormitory Authority,
PA-60 March 13, 1995 5,475,000
New York State Medical Care Facilities
Finance Agency August 22, 1996 4,580,000
New York State Mortgage Agency
(Series PA-29) April 3, 1995 3,700,000
New York State Mortgage Agency
(PA-87) July 5, 1995 4,720,000
New York State Mortgage Agency
(Series PT-15B) December 29, 1995-
May 30, 1996 7,270,000
VRDC/IVRC Trust (Series 1992A) July 5, 1995 5,000,000
VRDC/IVRC Trust (Series 1993G) August 14, 1996-
October 25, 1996 9,900,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
NEW YORK MUNICIPAL CASH TRUST
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$331,104,268.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 990,741,683 1,002,966,036
Shares issued to shareholders in payment of distributions declared 1,624,496 1,484,402
Shares redeemed (962,988,268) (964,892,684)
Net change resulting from Institutional Service Share transactions 29,377,911 39,557,754
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995
CASH II SHARES SHARES SHARES
<S> <C> <C>
Shares sold 142,294,754 233,109,208
Shares issued to shareholders in payment of distributions declared 574,995 1,829,763
Shares redeemed (131,736,985) (354,551,861)
Net change resulting from Cash II Share transactions 11,132,764 75,166,605
Net change resulting from share transactions 40,510,675 (80,055,137)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
NEW YORK MUNICIPAL CASH TRUST
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will reimburse Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Institutional Service Shares and Cash II
Shares. The Plan provides that the Fund may incur distribution expenses up
to 0.25% of the average daily net assets of the Institutional Service Shares
and Cash II Shares, annually, to reimburse FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $479,312,850 and $413,930,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
CONCENTRATION OF CREDIT RISK -- Since the Fund invests a substantial portion
of its assets in issuers located in one state, it will be more susceptible
to factors adversely affecting issuers of that state than would be a
comparable tax-exempt mutual fund that invests nationally. In order to
reduce the credit risk associated with such factors, at October 31, 1996,
60% of the securities in the portfolio of investments are backed by letters
of credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The percentage of investments insured by or
supported (backed) by a letter of credit from any one institution or agency
did not exceed 9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(New York Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of New
York Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
of investments, as of October 31, 1996, the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights (see pages 2 and 15 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
New York Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
New York Municipal Cash Trust
Institutional Service 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
Federated Investors
[graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[graphic]
Cusip 314229741
G00208-01 (12/96)
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of New York Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[logo]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229741
8120103B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
NEW YORK INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustees Compensation 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 11
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 12
Total Return 13
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York (the `State'') issuers which
result in the Fund's performance being subject to risks associated with the
overall conditions present within the State. The following information is a
general summary of the State's financial condition and a brief summary of
the prevailing economic conditions. This information is based on official
statements relating to securities that are believed to be reliable but
should not be considered as a complete description of all relevant
information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs,
education and Medicare expenditures have been the areas of largest growth
while prudent program cuts and increases in revenues through service fees
has enabled the state's budget to remain within balance for the last few
years. While the state still has a large accumulated deficit as a
percentage of its overall budget, the fiscal performance in recent years
has demonstrated a changed political environment that has resulted in
realistic revenue and expenditure projections to achieve financially
favorable results. The state also benefits from a high level of per capita
income that is well above the national average and from significant amounts
of international trade.
New York's economy is large and diverse. While several upstate counties
benefit from agriculture, manufacturing and high technology industries, New
York City nonetheless still dominates the State's economy through its
international importance in economic sectors such as advertising, finance,
and banking. New York's recession ended during the first quarter of 1993,
but recovery has been at a slower pace than national or regional levels.
New York's employment growth is projected to average 1%-1.5% annually
through 2000. New York state income levels continue to be almost 20% above
the national average; however, real income growth is expected to lage the
nation for the remainder of the decade.
New York's budget process has been historically characterized by
contentious and protracted budget debates. New York State's fiscal 1997
budget increases expenditures by a mere 1.4% over the 1996 levels.
Additionally, the fiscal 1996 and 1997 budgets include a $2 billion multi-
year income tax reduction plan. Balancing the budget in the wake of tax
cuts makes the spending reduction plan even more critical. Moreover, New
York has yet to fully address Federal welfare reform. The way in which the
state resolves these issues will be a good indicator of sustained fiscal
stability.
The overall credit quality of the State is further demonstrated by its debt
ratings. New York State maintains an A rating Moody's Investors Service,
Inc. and Standard & Poor's Ratings Group rates the State A-.
The Fund's concentration in municipal securities issued by the state and
its political subdivisions provides a greater level of risk than a fund
which is diversified across numerous states and municipal entities. The
ability of the state or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the state; and the underlying fiscal
condition of the state, its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of transactions.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of its total assets or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order
to meet redemption requests without immediately selling portfolio
instruments. This borrowing provision is not for investment leverage
but solely to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Interest paid on
borrowed funds will serve to reduce the Fund's income. The Fund will
liquidate any such borrowings as soon as possible and may not purchase
any portfolio instruments while any borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
as necessary to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding 10% of the value of
its total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest
in New York municipal securities secured by real estate or interests
in real estate.
INVESTING IN COMMODITIES AND MINERALS
The Fund will not purchase or sell commodities, commodity contracts,
or oil, gas, or other mineral exploration or development programs.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
MAKING LOANS
The Fund will not make loans except that it may acquire publicly or
non-publicly issued New York municipal securities, in accordance with
its investment objective, policies, and limitations, and the Trust's
Declaration of Trust.
ACQUIRING SECURITIES
The Fund will not acquire the voting securities of any issuer, except
as part of a merger, consolidation, reorganization, or acquisition of
assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company or investment trust.
INVESTMENTS IN ANY ONE ISSUER
With respect to securities comprising 75% of its assets, the Fund will
not invest more than 10% of its total assets in the securities of any
one issuer.
Under this limitation, each governmental subdivision, including
states, territories, possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalitites, 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 user are considered to be issued solely by that
user. If in the case of an industrial development bond or government
issued security, a governmental or other entity guarantees the
security, such guarantee would be considered a separate security
issued by the guarantor, as well as the other issuer, subject to
limited exclusions allowed by the Investment Company Act of 1940.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers (or in the alternative, guarantors, where
applicable) which have records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the Officers and Trustees of the Trust or its investment adviser,
owning individually more than .50% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN OPTIONS
The Fund will not purchase puts, calls, straddles, spreads, or any
combination of them, except that the Fund may purchase municipal
securities accompanied by agreements of sellers to repurchase them at
the Fund's option.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its total
assets in illiquid securities, including repurchase agreements
maturing in more than seven days.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by the
investment objective and policies and limitations of the Fund.
The above limitations cannot be changed without shareholder approval.
Shareholders will be notified before any material change in these
limitations becomes effective.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of November 26, 1996, the following shareholders of record owned 5% or
more of the outstanding Cash II Shares of the New York Municipal Cash
Trust: Saul R. and Marion Klein Kramer, Garden City, NY, owned
approximately 4,032,819 shares (16.82%); North Fork Bank & Trust Company,
Mattituck, NY, owned approximately 3,303,795 shares (13.78%); North Fork
Bank & Trust Company, Mineola, NY, owned approximately 1,709,594 shares
(7.13%); Misty Associates, Inc. Hauppauge, NY, owned approximately
1,697,173 shares(7.07%); Barrons Educational Series, Inc., Hauppa, NY,
owned approximately 1,649,386 shares (6.88%); Wayne D. Thornbrough, New
York, NY, owned approximately 1,551,415 shares (6.47%); North Atlantic
Components, Inc. Islandia, NY, owned approximately 1,467,846 shares
(6.12%); First National Bank of Long Island, Woodbury NY, owned
approximately 1,265,270 shares (5.27%); and Mrs. Margery A. Bartlett, Glen
Head, NY, owned approximately 1,250,056 shares (5.21%).
As of November 26, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Service Shares of the New York
Municipal Cash Trust: Fiduciary Trust Company International, New York, NY,
owned approximately 48,289,300 shares (14.71%); Nadir & Company,
Woodbridge, NJ, owned approximately 20,784,600 shares (6.33%); Fleet
Securities Corporation, Rochester, NY, owned approximately 43,229,312
shares (13.17%); and WESCO, Schenectady, NY, owned approximately 18,161,116
shares (5.53%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 New York Municipal Cash 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 New York Municipal Cash 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, 1996, 1995, and 1994, the adviser earned
$1,298,934, $1,335,835, and $1,383,576, respectively, of which $343,123,
$351,948, and $364,783, respectively, were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996,
1995, and 1994, the Administrators earned $245,547, $252,807, and $292,612,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities 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 Plan, the Trustees expect 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 seeking to achieve its investment objectives. By
identifying potential investors whose needs are served by the Fund `s
objectives, and properly servicing these accounts, the Fund may be able 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 year ended October 31, 1996, payments in the amount of
$61,083 and $750,832 were made pursuant to the Plan for Cash II Shares and
Institutional Service Shares, respectively, all of which was voluntarily
waived. In addition, for the fiscal year ended October 31, 1996, the Fund
paid shareholder service fees in the amounts of $61,083 and $751,279 for
Cash II Shares and Institutional Service Shares, respectively, of which $0
and $540,243, respectively were voluntarily waived.
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 0.50% 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.
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.
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, 1996, the yields for Cash II
Shares and Institutional Service Shares were 3.01% and 3.19%, 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, 1996, the effective yields for
Cash II Shares and Institutional Service Shares were 3.05% and 3.24%,
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 39.60% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yields
for Cash II Shares and Institutional Service Shares were 5.65% and 5.99%,
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 1996
STATE OF NEW YORK
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 22.125% 35.125% 38.125% 43.125% 46.725%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.93% 2.31% 2.42% 2.64% 2.82%
2.00% 2.57% 3.08% 3.23% 3.52% 3.75%
2.50% 3.21% 3.85% 4.04% 4.40% 4.69%
3.00% 3.85% 4.62% 4.85% 5.27% 5.63%
3.50% 4.49% 5.39% 5.66% 6.15% 6.57%
4.00% 5.14% 6.17% 6.46% 7.03% 7.51%
4.50% 5.78% 6.94% 7.27% 7.91% 8.45%
5.00% 6.42% 7.71% 8.08% 8.79% 9.39%
5.50% 7.06% 8.48% 8.89% 9.67% 10.32%
6.00% 7.70% 9.25% 9.70% 10.55% 11.26%
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.
The Fund's Cash II Shares average annual total returns for the one-year and
five-year periods ended October 31, 1996 and for the period from April 25,
1991 (date of initial public investment) through October 31, 1996 were
3.05%, 2.68% and 2.83%, respectively.
The Fund's Institutional Service Shares average annual total returns for
the one-year, five-year and ten-year periods ended October 31, 1996 were
3.24%, 2.86% and 3.86%, respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
FLORIDA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
The Cash II Shares of Florida Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual
fund). The Fund invests primarily in short-term Florida municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Florida, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and which will enable the Fund
to maintain an investment portfolio that will cause its shares to be exempt
from the Florida intangibles tax consistent with stability of principal and
liquidity.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS -- CASH II SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Florida Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 6
Management of the Fund 6
Distribution of Cash II Shares 7
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 9
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
Florida Intangibles Tax 12
Florida State Municipal Taxation 13
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 32
ADDRESSES 33
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CASH II SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver) (1) 0.12%
12b-1 Fee (after waiver) (2) 0.20%
Total Other Expenses 0.43%
Shareholder Services Fee 0.25%
Total Operating Expenses (3) 0.75%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.40%.
(2) The 12b-1 Fee has been reduced to reflect the anticipated voluntary
waiver of a portion of the 12b-1 fee. The distributor can terminate the
voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee
is 0.25%.
(3) The total operating expenses in the table are based on expenses expected
during the fiscal year ending October 31, 1997. The total operating
expenses were 0.65% for the fiscal year ended October 31, 1996, and would
have been 1.08% absent the voluntary waivers of portions of the
management fee and 12b-1 fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Cash II Shares of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $8 $24 $42 $93
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FLORIDA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(B) 2.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65%*
Net investment income 3.07%*
Expense waiver/reimbursement(c) 0.43%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $31,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 27, 1995 (date of
initial public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Cash II Shares and Institutional Shares. This prospectus relates
only to Cash II Shares of the Fund, which are designed primarily for retail
customers of financial institutions as a convenient means of accumulating an
interest in a professionally managed portfolio investing in short-term
municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Florida taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $10,000
over 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and
to maintain an investment portfolio that will cause its shares to be exempt
from the Florida intangibles tax. 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
complying with the diversification and other requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds
and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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
Florida intangibles tax. (Federal regular income tax does not include the
federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of 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 Florida 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 the Florida intangibles tax. Examples of
Florida Municipal Securities, ("Florida Municipal Securities") include, but
are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Florida
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Florida 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain Florida
Municipal Securities is subject to the federal alternative minimum tax.
FLORIDA MUNICIPAL SECURITIES
Florida 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.
Florida 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 Florida 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 Florida 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 Florida 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 Florida Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in Florida 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 Florida 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 Florida 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.
Due to these risk considerations the Fund's concentration in Florida
Municipal Securities may entail a greater level of risk than other types of
money market funds.
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 assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II Shares
of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of .25% of the average daily net asset
value of the Fund. The distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset
value of its shares to obtain certain personal services for shareholders and
to maintain shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services
directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon shares owned
by their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Distribution Plan and Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their
own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance may be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Fund's
investment adviser or it affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Cash II Shares from the value of Fund assets attributable to Cash II
Shares, and dividing the remainder by the number of Cash II 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $10,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 (Eastern time) to place an order. The order
is considered received immediately. Payment by federal funds must be
received before 3:00 (Eastern time) that day. Federal funds should be wired
as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida
Municipal Cash Trust -- Cash II Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Florida Municipal Cash
Trust -- Cash II Shares. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after
the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contracting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Shareholder Services
Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement. Under limited circumstances, arrangements
may be made with the distributor for same-day payment of proceeds, without
that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through
ACH will not be wired until that method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company, or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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 (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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $10,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 2, 1996, Trustman Company Bank, Atlanta, GA (as a record
owner holding Cash II Shares for its clients) owned 99.98% of the voting
securities of the Fund, and, therefore, may, for certain purposes, be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
Florida. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
FLORIDA INTANGIBLES TAX
Shareholders of the Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Fund shares in their
taxable intangible property if all of the Fund's investments on the annual
assessment date are obligations that would be exempt from such tax if held
directly by such shareholders, such as Florida and U.S. government
obligations. As described earlier, the Fund will normally attempt to invest
substantially all of its assets in securities which are exempt from the
Florida intangibles tax. Accordingly, the value of the Fund shares held by a
shareholder should under normal circumstances be exempt from the Florida
intangibles tax.
However, if the portfolio consists of any assets which are not so exempt on
the annual assessment date, only the portion of the shares of the Fund which
relate to securities issued by the United States and its possessions and
territories will be exempt from the Florida intangibles tax, even if they
partly relate to Florida tax exempt securities.
FLORIDA STATE MUNICIPAL TAXATION
In a majority of states that have an income tax, dividends paid by a mutual
fund attributable to investments in a particular state's municipal
obligations are exempt from both federal and such state's income tax. If
Florida were to adopt an income tax in the future, and assuming that its
income tax policy with respect to mutual funds investing in Florida state
and local municipal obligations would be similar to the general tax policy
of other states, dividends paid by the Fund would be exempt from Florida
state income tax. A constitutional amendment approved by referendum would be
required before an individual tax could be imposed.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares
that are sold primarily to financial institutions acting in a fiduciary
capacity. Institutional Shares are sold at net asset value and are subject
to a Shareholder Services Agreement. Investment in Institutional Shares are
subject to a minimum initial investment of $10,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares are distributed under a 12b-1 Plan adopted by the Fund
and also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
FLORIDA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.000
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.04 0.004
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.04) (0.004)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.000
TOTAL RETURN(B) 3.20% 3.60% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.45% 0.28%*
Net investment income 3.17% 3.58% 3.28%*
Expense waiver/reimbursement(c) 0.34% 0.42% 1.03%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $500,993 $153,347 $53,966
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 21, 1994 (date of
initial public investment) to October 31, 1994. For the period from
September 12, 1994 (start of business) to September 21, 1994 the Fund
had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.6%
FLORIDA--87.0%
$ 14,000,000 Alachua County, FL Health Facilities
Authority, Health Facilities
Revenue Bonds (Series 1996B) Weekly VRDNs
(Shands Teaching
Hospital and Clinics, Inc.)/(MBIA
INS)/(SunTrust Bank,
Central Florida LIQ) $ 14,000,000
6,500,000 Brevard County, FL School District, Series
1996, 4.20% TANs,
6/30/1997 6,523,026
3,000,000 Broward County, FL HFA, Multifamily Housing
Revenue Refunding
Bonds (1995 Series B) Weekly VRDNs (Harbour
Town of Jacaranda
Project)/(SouthTrust Bank of Alabama, 3,000,000
Birmingham LOC)
3,510,000 Broward County, FL Health Facility Authority,
Revenue Bonds
Weekly VRDNs (John Knox Village of
Florida)/(First Union National
Bank, Charlotte, NC LOC) 3,510,000
1,130,000 Broward County, FL, IDRB (Series 1993) Weekly
VRDNs (American
Whirlpool Products Corp. 1,130,000
Project)/(NationsBank, South LOC)
8,000,000 Charlotte County, FL School District, Series
1996, 4.00% TANs,
6/30/1997 8,016,493
14,190,000 (b)Clipper Florida Tax-Exempt Trust, Class A
Certificates of Participation,
Series 1996-3B Weekly VRDNs (Escambia County,
FL HFA)/(State
Street Bank and Trust Co. LOC) 14,190,000
4,300,000 Collier County, FL HFA, Multi-Family Revenue
Bonds (Series 1985)
Weekly VRDNs (River Reach Project)/(Morgan
Guaranty Trust Co.,
New York LOC) 4,300,000
9,000,000 Dade County, FL HFA, (Series 1996), 4.00% TOBs
(FGIC INV),
Mandatory Tender 10/1/1997 9,000,000
11,500,000 Dade County, FL HFA, Hospital Revenue Bonds
(Series 1995) Weekly
VRDNs (Miami Children's Hospital
Project)/(AMBAC INS)/
(SunTrust Bank, Atlanta LIQ) 11,500,000
1,800,000 Dade County, FL IDA, IDRB (Series 1995) Weekly
VRDNs (June
Leasing Co. Project (FL))/(First Union 1,800,000
National Bank of Florida LOC)
2,000,000 Dade County, FL IDA, IDRB (Series 1996A)
Weekly VRDNs
(U.S. Holdings, Inc.)/(First Union National 2,000,000
Bank of Florida LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 2,550,000 Dade County, FL Resource Recovery Facilities,
4.00% Bonds
(AMBAC INS), 10/1/1997 $ 2,550,000
11,000,000 Dade County, FL Water & Sewer System Weekly
VRDNs (FGIC INS)/
(Commerzbank AG, Frankfurt LIQ) 11,000,000
3,000,000 Duval County, FL HFA, Multifamily Housing
Revenue Bonds
(Series 1985 F) Weekly VRDNs (Lakes of Mayport
Apartments
Project)/(SunTrust Bank, Atlanta LOC) 3,000,000
3,900,000 Escambia County, FL HFA, SFM Revenue Bonds
(Series 1996B), 3.65%
TOBs (Trinity Funding Company INV), Mandatory 3,900,000
Tender 4/1/1997
6,250,000 Eustis Health Facilities Authority, FL,
(Series 1985) Weekly VRDNs
(Waterman Medical Center)/(Banque Paribas, 6,250,000
Paris LOC)
9,730,000 Eustis Health Facilities Authority, FL, Health
Facilities Revenue
Bonds, (Series 1992) Weekly VRDNs (Florida
Hospital/Waterman,
Inc. Project)/(Banque Paribas, Paris LOC) 9,730,000
9,220,000 Florida HFA Weekly VRDNs (Cornerstone Imaging,
Inc.)/(PNC Bank,
NA LOC) 9,220,000
6,920,000 (b)Florida HFA, Homeowner Mortgage Revenue
Bonds PT-88
(Series 1996-3) Weekly VRDNs (Banco Santander 6,920,000
LIQ)
4,700,000 Florida HFA, Housing Revenue Bonds (Series J)
Weekly VRDNs
(Ashley Lake Project)/(Barclays Bank PLC, 4,700,000
London LOC)
6,570,000 Florida HFA, Multifamily Housing Revenue Bonds
(1995 Series M)
Weekly VRDNs (Bainbridge Club Apartments
Project)/(PNC Bank,
Kentucky LOC) 6,570,000
5,380,000 Florida State Board of Education
Administration, (CR55D), 3.60%
TOBs (Citibank NA, New York LIQ), Optional 5,380,000
Tender 12/1/1996
2,500,000 (b)Florida State Department of Transportation,
(Series 1993A) Weekly
VRDNs (Norwest Bank Minnesota, Minneapolis 2,500,000
LOC)
7,960,000 Fort Lauderdale, FL Performing Arts Center
Authority Weekly
VRDNs (SunTrust Bank, Central Florida LOC) 7,960,000
3,620,000 Gainesville, FL Utilities Systems, (Series A),
7.75% Bonds (United
States Treasury PRF), 10/1/1997 (@102) 3,817,058
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 9,000,000 Greater Orlando (FL) Aviation Authority,
Airport Facilities
Subordinated CP Notes (Series B), 3.55%,
Mandatory Tender
12/13/1996 $ 8,999,190
3,000,000 Gulf Breeze, FL, Variable Rate Demand Revenue
Bonds (Series 1995A)
Weekly VRDNs (Florida Municipal Bond
Fund)/(Barnett Bank,
NA LOC) 3,000,000
6,900,000 Hillsborough County, FL Aviation Authority,
Bond Anticipation
Commercial Paper Notes, 3.65% CP (Tampa
International Airport)/
(National Westminster Bank, PLC, London LOC),
Mandatory Tender
1/14/1997 6,900,000
5,500,000 Hillsborough County, FL Aviation Authority,
Bond Anticipation
Commercial Paper Notes, 3.80% CP (Tampa
International Airport)/
(National Westminster Bank, PLC, London LOC),
Mandatory Tender
1/16/1997 5,500,000
2,000,000 Hillsborough County, FL IDA Weekly VRDNs
(Ringhager Equipment
Co.)/(Mellon Bank NA, Pittsburgh LOC) 2,000,000
2,400,000 Hillsborough County, FL IDA, (Series 1992)
Weekly VRDNs (SIFCO
Turbine Component Service)/(National City
Bank, Cleveland,
OH LOC) 2,400,000
1,400,000 Hillsborough County, FL IDA, IDRB (Series
1996) Weekly VRDNs
(VIGO Importing Company Project)/(Barnett 1,400,000
Bank, NA LOC)
17,975,000 Hillsborough County, FL IDA, PCR Refunding
Bonds Long Option
Period (CR-31I), 3.60% TOBs (Tampa Electric
Company)/(MBIA INS),
Optional Tender 4/1/1997 17,975,000
1,500,000 Hillsborough County, FL IDA, Variable Rate
Demand IDRB's
(Series 1996) Weekly VRDNs (Trident Yacht
Building Partnership
Project)/(First Union National Bank of Florida 1,500,000
LOC)
7,000,000 Indian River County, FL Hospital District,
(Series 1985) Weekly
VRDNs (Kredietbank N.V., Brussels LOC) 7,000,000
9,000,000 Jacksonville Health Facilities Authority,
Hospital Revenue
Improvement Bonds (Series 1994) Weekly VRDNs
(Baptist Medical
Center, FL)/(First Union National Bank of 9,000,000
Florida LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 6,425,000 Jacksonville, FL HFDC Daily VRDNs (River
Garden Project)/(Banque
Paribas, Paris LOC) $ 6,425,000
2,905,000 Jacksonville, FL HFDC, Health Facilities
Revenue Bonds (Series 1994)
Weekly VRDNs (River Garden/The Coves
Project)/(First Union
National Bank, Charlotte, NC LOC) 2,905,000
2,000,000 Jacksonville, FL HFDC, Health Facilities
Revenue Bonds (Series 1996)
Weekly VRDNs (Jacksonville Faculty Practice
Association Project)/
(NationsBank, South LOC) 2,000,000
1,000,000 Jacksonville, FL Weekly VRDNs (Metal
Sales)/(National City Bank,
Kentucky LOC) 1,000,000
6,000,000 Jacksonville, FL, Hospital Revenue Bonds
(Series 1989) Weekly
VRDNs (Baptist Medical Center, AL)/(First
Union National Bank,
Charlotte, NC LOC) 6,000,000
1,900,000 Jacksonville, FL, Hospital Revenue Bonds,
10.50% Bonds (Methodist
Hospital of Florida)/(United States Treasury 2,047,212
PRF), 10/1/1997 (@102)
4,300,000 Key West, FL Community Redevelopment Authority
Weekly VRDNs
(Pier House Joint Venture)/(PNC Bank, NA LOC) 4,300,000
1,000,000 Lee County, FL IDA, IDRB (Series 1994) Weekly
VRDNs (Baader
North America Corporation)/(Deutsche Bank, AG 1,000,000
LOC)
5,710,000 Manatee County, FL HFA Weekly VRDNs (Carriage
Club)/(Mellon
Bank NA, Pittsburgh LOC) 5,710,000
3,800,000 Manatee County, FL HFA, Multifamily Mortgage
Revenue Refunding
Bonds (Series 1989-A) Weekly VRDNs
(Hampton/McGuire L.P.)/
(Nationsbank, NA LOC) 3,800,000
1,000,000 Marion County, FL Health Facility Authority,
Multifamily Revenue
Bonds (1985 Series F) Weekly VRDNs (Paddock
Place Project)/
(SunTrust Bank, Atlanta LOC) 1,000,000
2,850,000 Marion County, FL IDA, IDRB (Series 1989)
Weekly VRDNs (Charter
Springs Hospital, Inc.)/(Bankers Trust Co., 2,850,000
New York LOC)
2,400,000 Martin County, FL IDA, Tender Industrial
Revenue Bonds (Series
1986) Weekly VRDNs (Tampa Farm Service, Inc.
Project)/(SunTrust
Banks, Inc. LOC) 2,400,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 5,800,000 Ocean Highway and Port Authority, Revenue
Bonds (Series 1990)
Weekly VRDNs (ABN AMRO Bank NV, Amsterdam LOC) $ 5,800,000
5,000,000 Orange County, FL HFA, (Series 1996B), 3.65%
TOBs (Westdeutsche
Landesbank Girozentrale INV), Mandatory Tender 5,000,000
4/1/1997
4,000,000 Orange County, FL HFA, Multifamily Housing
Refunding Revenue
Bonds (1992 Series A) Weekly VRDNs
(Smokewood/Sun Key
Apartments Project (FL))/(Citibank NA, New 4,000,000
York LOC)
11,630,000 Orange County, FL HFA, Multifamily Housing
Revenue Bonds
Weekly VRDNs (Sutton Place. Ltd. 11,630,000
Project)/(Nationsbank, NA LOC)
800,000 Orange County, FL, Health Facilities Authority
Weekly VRDNs
(Mayflower Retirement Community)/(Rabobank
Nederland,
Utrecht LOC) 800,000
18,125,000 (b)Orange County, FL, Health Facilities
Authority, CDC Municipal
Products, Inc. Class A Certificates (Series
1996 D-1) Weekly VRDNs
(FGIC INS)/(CDC Municipal Products, Inc. LIQ) 18,125,000
10,830,000 (b)Orange County, FL, Health Facilities
Authority, CDC Municipal
Products Class A Certificates (Series 1996
D-2) Weekly VRDNs (FGIC
INS)/(CDC Municipal Products, Inc. LIQ) 10,830,000
3,500,000 Pinellas County Industry Council, FL, IDRB
(Series 1994) Weekly
VRDNs (Genca Corporation Project)/(PNC Bank, 3,500,000
Ohio, NA LOC)
2,813,000 Pinellas County Industry Council, FL, IDRB
(Series 1995) Weekly
VRDNs (ATR International Inc., Project)/(First
Union National Bank
of Florida LOC) 2,813,000
6,000,000 Pinellas County, FL HFA, SFM Revenue Bonds
(Series B), 3.40% TOBs
(Trinity Funding Company INV), Mandatory 6,000,000
Tender 3/1/1997
11,900,000 Pinellas County, FL Health Facility Authority
Daily VRDNs (Chase
Manhattan Bank NA, New York LOC) 11,900,000
2,645,000 Pinellas County, FL Health Facility Authority,
(Series 1987) Weekly
VRDNs (St. Mark Village Project)/(NationsBank, 2,645,000
South LOC)
3,200,000 (b)Pinellas County, FL Health Facility
Authority, SFM Revenue Bonds
(Series PA-92) Weekly VRDNs (GNMA
COL)/(Merrill Lynch Capital
Services, Inc. LIQ) 3,200,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 1,000,000 Polk County, FL IDA, Variable Rate Demand
IDRB's (Series 1996)
Weekly VRDNs (Ytong Florida, Ltd.
Project)/(First Union National
Bank of Florida LOC) $ 1,000,000
8,300,000 Putnam County, FL Development Authority,
Floating/Fixed Rate
Poll Control Revenue Bonds (Pooled Series 1984
H-4), 3.80% TOBs
(Seminole Electric Cooperative, Inc
(FL))/(National Rural Utilities
Cooperative Finance Corp. LOC), Optional 8,300,000
Tender 3/15/1997
4,165,000 Putnam County, FL Development Authority, PCR
Bonds (Pooled
Series 1984S) Weekly VRDNs (Seminole Electric
Cooperative, Inc
(FL))/(National Rural Utilities Cooperative 4,165,000
Finance Corp. LOC)
5,550,000 Putnam County, FL Development Authority, PCR
Bonds (Series
1984H) Weekly VRDNs (Seminole Electric
Cooperative, Inc (FL))/
(National Rural Utilities Cooperative Finance 5,550,000
Corp. LOC)
3,040,000 (d)Sarasota County, FL IDRB, (Series 1994),
3.60%, Monthly VRDNs
(Resource Recovery Systems of Sarasota
Project)/(Fleet National
Bank, Providence, RI LOC), 11/1/1996 3,040,000
3,000,000 Sarasota County, FL Public Hospital District,
Series 1993A, 3.60% CP
(Sarasota Memorial Hospital), Mandatory Tender 3,000,000
1/28/1997
1,500,000 Sarasota, FL, Educational Facilities Revenue
Bonds (Series 1996)
Weekly VRDNs (Ringling School of Art and
Design, Inc.)/(SunTrust
Bank, Central Florida LOC) 1,500,000
4,600,000 Seminole County, FL Health Facility Authority
IDA, (Series 1991)
Weekly VRDNs (Florida Living Nursing
Center)/(Barnett Bank,
NA LOC) 4,600,000
4,350,000 St. Lucie County, FL PCR, Pollution Ctrl
Revenue Refunding Bonds
(Series 1994A), 3.70% CP (Florida Power &
Light Co.), Mandatory
Tender 1/29/1997 4,350,000
7,720,000 St. Lucie County, FL, IDR Bonds (Series 1985)
Weekly VRDNs
(Savannahs Hospital)/(NationsBank, South LOC) 7,720,000
1,400,000 Sumter County, FL IDA Weekly VRDNs (Great
Southern Wood of
Florida)/(SouthTrust Bank of Alabama, 1,400,000
Birmingham LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 10,000,000 Sunshine State Governmental Finance
Commission, FL, 3.60% CP
(Morgan Guaranty Trust Co., New York, National
Westminster Bank,
PLC, London and Union Bank of Switzerland,
Zurich LOCs),
Mandatory Tender 2/19/1997 $ 10,000,000
16,385,000 Sunshine State Governmental Finance
Commission, FL, 3.60% CP,
Mandatory Tender 1/10/1997 16,385,000
6,050,000 Sunshine State Governmental Finance
Commission, FL, 3.70% CP,
Mandatory Tender 1/29/1997 6,050,000
13,500,000 (b)TEB Municipal Trust I, Class A Floating Rate
Receipts Weekly VRDNs
(Uniforet Inc.)/(Bank One, Columbus, NA LOC) 13,500,000
2,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs
(Arch Aluminum &
Glass Co., Inc. Project)/(Mellon Bank NA, 2,300,000
Pittsburgh LOC)
6,200,000 Titusville, FL, Multi-Purpose Revenue Bonds,
Installment 1995A
Weekly VRDNs (Banque Paribas, Paris LOC) 6,200,000
2,565,000 Volusia County, FL HFA Weekly VRDNs
(Fisherman's Landing)/
(Mellon Bank NA, Pittsburgh LOC) 2,565,000
2,060,000 Volusia County, FL Health Facilities
Authority, (Series 1994A)
Weekly VRDNs (Southwest Volusia Healthcare
Corp.)/(First Union
National Bank, Charlotte, NC LOC) 2,060,000
1,625,000 Volusia County, FL IDA Weekly VRDNs (Crane
Cams)/(First
Interstate Bank of Arizona, NA LOC) 1,625,000
2,800,000 Wakulla County, FL IDA Weekly VRDNs (Winco
Utilities, Inc.
Project)/(Barnett Bank, NA LOC) 2,800,000
Total 463,930,979
KENTUCKY--2.7%
14,400,000 Kentucky Pollution Abatement & Water Resource
Finance Authority
Daily VRDNs (Toyota Motor Credit Corp.) 14,400,000
MICHIGAN--1.1%
6,000,000 Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Series
1995) Weekly VRDNs (United Waste Systems,
Inc.)/(Bank of America
Illinois LOC) 6,000,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--3.3%
$ 2,955,000 Byron, MN IDB Weekly VRDNs (Schmidt
Printing)/(Norwest Bank
Minnesota, Minneapolis LOC) $ 2,955,000
5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs
(Jerome Foods)/
(Norwest Bank Minnesota, Minneapolis LOC) 5,000,000
3,800,000 Minnesota State Higher Education Coordinating
Board, (Series 1992A)
Weekly VRDNs (First Bank NA, Minneapolis LIQ) 3,800,000
2,100,000 Owatonna, MN, Hospital Revenue Bonds Weekly
VRDNs (Health
Central System)/(Norwest Bank Minnesota, 2,100,000
Minneapolis LOC)
3,600,000 White Bear, MN Weekly VRDNs (Thermoform
Plastic, Inc.)/(Norwest
Bank Minnesota, Minneapolis LOC) 3,600,000
Total 17,455,000
OHIO--1.1%
3,800,000 Ohio HFA, Trust Receipts, (Series 1996
FR/RI-5) Weekly VRDNs
(Bank of New York, New York LIQ)/(GNMA LOC) 3,800,000
2,000,000 Ohio State Water Development Authority, Ohio
PCR Bonds (Series
1989) Weekly VRDNs (Duquesne Light Power
Co.)/(Barclays Bank
PLC, London LOC) 2,000,000
Total 5,800,000
PUERTO RICO--0.9%
5,000,000 Puerto Rico Government Development Bank, 3.65%
CP, Mandatory
Tender 2/14/1997 5,000,000
TENNESSEE--0.5%
2,300,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds
(Series 1996) Weekly
VRDNs (M4 Environmental L.P.
Project)/(SunTrust Bank,
Atlanta LOC) 2,300,000
200,000 South Pittsburg, TN IDB, (Series 1996) Weekly
VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, 200,000
Nashville LOC)
Total 2,500,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
TEXAS--3.0%
$ 10,750,000 Angelina and Neches River Authority, Texas,
Solid Waste Disposal
Revenue Bonds (Series 1993), 3.70% CP
(Temple-Eastex Inc. Project)/
(Temple-Inland, Inc. GTD), Mandatory Tender $ 10,750,000
12/12/1996
5,000,000 Texas State, 4.75% TRANs, 8/29/1997 5,031,153
Total 15,781,153
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 530,867,132
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 33.4% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSRO's") or unrated securities of comparable quality. 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $69,265,000 which represents 13% of net assets.
(c) Also represents cost for federal tax purposes.
(d) Current rate and next reset date shown.
Note: The categories of investments are shown as a percentage of net assets
($532,816,645) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
GNMA -- Government National Mortgage Association
GTD -- Guaranty
HFA -- Housing Finance Authority
HFDC -- Health Facility Development Corporation
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bond
INS -- Insured
INV -- Investment Agreement
LIQ -- Liquidity Agreement
LOCs -- Letter(s) of Credit
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
PRF -- Prerefunded
SFM -- Single Family Mortgage
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost $530,867,132
and value
Cash 326,304
Income receivable 2,448,806
Deferred expenses 23,988
Total assets 533,666,230
LIABILITIES:
Payable for shares redeemed $ 6,687
Income distribution payable 612,866
Accrued expenses 230,032
Total liabilities 849,585
NET ASSETS for 532,816,645 shares outstanding $532,816,645
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$500,992,905 / 500,992,905 shares outstanding $1.00
CASH II SHARES:
$31,823,740 / 31,823,740 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 14,309,120
EXPENSES:
Investment advisory fee $ 1,558,498
Administrative personnel 294,886
and services fee
Custodian fees 52,742
Transfer and dividend 48,434
disbursing agent fees and
expenses
Directors'/Trustees' fees 4,998
Auditing fees 13,156
Legal fees 13,564
Portfolio accounting fees 91,304
Distribution services fee 113,244
-- Cash II Shares
Shareholder services fee -- 860,815
Institutional Shares
Shareholder services fee -- 113,244
Cash II Shares
Share registration costs 146,642
Printing and postage 24,078
Insurance premiums 5,701
Miscellaneous 3,504
Total expenses 3,344,810
Waivers --
Waiver of investment $ (1,071,607)
advisory fee
Waiver of distribution (67,947)
services fee -- Cash II
Shares
Waiver of shareholder (206,595)
services fee --
Institutional Shares
Total waivers (1,346,149)
Net expenses 1,998,661
Net investment $ 12,310,459
income
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 12,310,459 $ 4,683,407
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net
investment income
Institutional Shares (10,917,907) (4,683,407)
Cash II Shares (1,392,552) --
Change in net assets resulting
from distributions to
shareholders (12,310,459) (4,683,407)
SHARE TRANSACTIONS --
Proceeds from sale of shares 2,270,320,962 1,361,774,097
Net asset value of shares issued
to shareholders in payment of
distributions declared 6,801,443 2,166,363
Cost of shares redeemed (1,897,652,278) (1,264,560,129)
Change in net assets resulting 379,470,127 99,380,331
from share transactions
Change in net assets 379,470,127 99,380,331
NET ASSETS:
Beginning of period 153,346,518 53,966,187
End of period $ 532,816,645 $ 153,346,518
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Cash Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of sixteen portfolios. The
financial statements included herein are only those of Florida Municipal
Cash Trust (the "Fund"). The financial statements of the other portfolios
are presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and
to maintain an investment portfolio that will cause its shares to be exempt
from the Florida intangibles tax.
The Fund offers two classes of shares: Institutional Shares and Cash II
Shares.
Effective November 17, 1995, the Fund added Cash II Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee. Additional information on each
restricted security held at October 31, 1996, is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATA ACQUISITION COST
<S> <C> <C>
Clipper Florida Tax-Exempt Trust, Class A 6/14/1996-
Certificates of Participation, Series 6/19/1996 $14,190,000
1996-3B
Florida HFA, Homeowner Mortgage
Revenue Bonds PT-88 (Series 1996-3) 9/27/1996 6,920,000
Florida State Department of
Transportation, (Series 1993A) 7/23/1996 2,500,000
Orange County, FL, Health Facilities
Authority,
CDC Municipal Products, Inc. Class A
Certificates (Series 1996 D-1) 9/3/1996 18,125,000
Orange County, FL, Health Facilities
Authority,
CDC Municipal Products, Inc. Class A
Certificates (Series 1996 D-2) 5/5/1995 10,830,000
Pinellas County, FL Health Facility
Authority,
SFM Revenue Bonds (Series PA-92) 3/3/1995 3,200,000
TEB Municipal Trust I, Class A Floating
Rate Receipts 8/27/1996 13,500,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$532,816,645. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1996 1995
<S> <C> <C>
Shares sold 1,967,231,853 1,361,774,097
Shares issued to shareholders in 6,801,419 2,166,363
payment of distributions declared
Shares redeemed (1,626,386,885) (1,264,560,129)
Net change resulting from 347,646,387 99,380,331
Institutional Shares transactions
<CAPTION>
PERIOD ENDED OCTOBER 31,
CASH II SHARES 1996(A) 1995
<S> <C> <C>
Shares sold 303,089,109 --
Shares issued to shareholders in 24 --
payment of distributions declared
Shares redeemed (271,265,393) --
Net change resulting from 31,823,740 --
Institutional Shares transactions
Net change resulting from share 379,470,127 99,380,331
transactions
</TABLE>
(a) For the period from November 27, 1995 (date of initial public
investment) to October 31, 1996.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Institutional Shares and Cash II Shares.
The Plan provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Institutional Shares 0.25%
Cash II Shares 0.25%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
For the year ended October 31, 1996, Institutional Shares did not incur a
distribution services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- Federated
Services Company ("FServ"), through its subsidiary, Federated Shareholder
Services Company ("FSSC") serves as transfer and dividend disbursing agent
for the Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $15,374 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $2,135 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $1,179,910,345 and $1,246,725,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 76.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 7.5% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(FLORIDA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Florida Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
of investments, as of October 31, 1996 and the related statement of
operations for the year then ended and the statement of changes in net
assets, and the financial highlights (see pages 2 and 14 of the prospectus)
for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Florida Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
ADDRESSES
Florida Municipal Cash Trust
Cash II 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 PPG Place
Pittsburgh, PA 15222
FLORIDA MUNICIPAL
CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229683
G00537-02-CII (12/96)
FLORIDA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Florida Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Florida municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Florida, or its
political subdivisions and financing authorities, but which provide income
exempt from federal regular income tax and which will enable the Fund to
maintain an investment portfolio that will cause its shares to be exempt
from the Florida intangibles tax consistent with stability of principal and
liquidity.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Florida Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 6
Management of the Fund 6
Distribution of Institutional Shares 7
Administration of the Fund 8
NET ASSET VALUE 8
HOW TO PURCHASE SHARES 9
Special Purchase Features 9
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
Florida Intangibles Tax 12
Florida State Municipal Taxation 13
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
CLASS II SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 32
ADDRESSES 33
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1) 0.12%
12b-1 Fee (2) 0.00%
Total Other Expenses 0.37%
Shareholder Services Fee (after waiver) (3) 0.19%
Total Operating Expenses (4) 0.49%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The Fund has no present intention of paying or accruing the 12b-1 fee
during the fiscal year ending October 31, 1997. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.25% of its
average daily net assets for the 12b-1 fee. See "Fund Information."
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(4) The total operating expenses would have been 0.83% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Institutional Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $5 $16 $27 $62
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FLORIDA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.000
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.04 0.004
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.04) (0.004)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.000
TOTAL RETURN(B) 3.20% 3.60% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.45% 0.28%*
Net investment income 3.17% 3.58% 3.28%*
Expense waiver/reimbursement(c) 0.34% 0.42% 1.03%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $500,993 $153,347 $53,966
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 21, 1994 (date of
initial public investment) to October 31, 1994. For the period from
September 12, 1994 (start of business) to September 21, 1994 the Fund
had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Shares and Cash II Shares. This prospectus relates
only to Institutional Shares of the Fund, which are designed primarily for
financial institutions acting in an agency or fiduciary capacity as a
convenient means of accumulating an interest in a professionally managed
portfolio investing primarily in short-term Florida municipal securities.
The Fund may not be a suitable investment for retirement plans or for
non-Florida taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 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
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and
to maintain an investment portfolio that will cause its shares to be exempt
from the Florida intangibles tax. 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
complying with the diversification and other requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds
and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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
Florida intangibles tax. (Federal regular income tax does not include the
federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of 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 Florida 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 the Florida intangibles tax ("Florida
Municipal Securities"). Examples of Florida Municipal Securities, but are
not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Florida
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Florida 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain Florida
Municipal Securities is subject to the federal alternative minimum tax.
FLORIDA MUNICIPAL SECURITIES
Florida 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.
Florida 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 Florida 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 Florida 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 Florida 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 Florida Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in Florida 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 Florida 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 Florida 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.
Due to these risk considerations the Fund's concentration in Florida
Municipal Securities may entail a greater level of risk than other types of
money market funds.
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 assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of .25% of the average daily net asset
value of the Fund. The distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to .25% of the average daily net asset
value of its shares to obtain certain personal services for shareholders and
to maintain shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services
directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon shares owned
by their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Distribution Plan and Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their
own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance may be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Fund's
investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $10,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 (Eastern time) to place an order. The order
is considered received immediately. Payment by federal funds must be
received before 3:00 (Eastern time) that day. Federal funds should be wired
as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida
Municipal Cash Trust -- Institutional Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Florida Municipal Cash
Trust -- Institutional Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next
day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholders checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Shareholder Services
Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement. Under limited circumstances, arrangements
may be made with the distributor for same-day payment of proceeds, without
that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through
ACH will not be wired until that method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares by Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company, or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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 (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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $10,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of November 26, 1996, Charles Schwab and Co., Inc., San Francisco, CA (as
a record owner holding Institutional Shares for its clients) owned 42.74% of
the voting securities of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
Florida. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
FLORIDA INTANGIBLES TAX
Shareholders of the Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Fund shares in their
taxable intangible property if all of the Fund's investments on the annual
assessment date are obligations that would be exempt from such tax if held
directly by such shareholders, such as Florida and U.S. government
obligations. As described earlier, the Fund will normally attempt to invest
substantially all of its assets in securities which are exempt from the
Florida intangibles tax. Accordingly, the value of the Fund shares held by a
shareholder should under normal circumstances be exempt from the Florida
intangibles tax.
FLORIDA STATE MUNICIPAL TAXATION
In a majority of states that have an income tax, dividends paid by a mutual
fund attributable to investments in a particular states municipal
obligations are exempt from both federal and such states income tax. If
Florida were to adopt an income tax in the future, and assuming that its
income tax policy with respect to mutual funds investing in Florida state
and local municipal obligations would be similar to the general tax policy
of other states, dividends paid by the Fund would be exempt from Florida
state income tax. A constitutional amendment approved by referendum would be
required before an individual tax could be imposed.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Cash II Shares. Cash II
Shares are sold at net asset value primarily to retail customers of
financial institutions and are subject to a minimum initial investment of
$10,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and
also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
FLORIDA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page
32.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(B) 2.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65%*
Net investment income 3.07%*
Expense waiver/reimbursement(c) 0.43%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $31,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 27, 1995 (date of
initial public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.6%
FLORIDA--87.0%
$ 14,000,000 Alachua County, FL Health Facilities
Authority, Health Facilities
Revenue Bonds (Series 1996B) Weekly VRDNs
(Shands Teaching
Hospital and Clinics, Inc.)/(MBIA
INS)/(SunTrust Bank,
Central Florida LIQ) $ 14,000,000
6,500,000 Brevard County, FL School District, Series
1996, 4.20% TANs,
6/30/1997 6,523,026
3,000,000 Broward County, FL HFA, Multifamily Housing
Revenue Refunding
Bonds (1995 Series B) Weekly VRDNs (Harbour
Town of Jacaranda
Project)/(SouthTrust Bank of Alabama, 3,000,000
Birmingham LOC)
3,510,000 Broward County, FL Health Facility Authority,
Revenue Bonds
Weekly VRDNs (John Knox Village of
Florida)/(First Union National
Bank, Charlotte, NC LOC) 3,510,000
1,130,000 Broward County, FL, IDRB (Series 1993) Weekly
VRDNs (American
Whirlpool Products Corp. 1,130,000
Project)/(NationsBank, South LOC)
8,000,000 Charlotte County, FL School District, Series
1996, 4.00% TANs,
6/30/1997 8,016,493
14,190,000 (b)Clipper Florida Tax-Exempt Trust, Class A
Certificates of Participation,
Series 1996-3B Weekly VRDNs (Escambia County,
FL HFA)/(State
Street Bank and Trust Co. LOC) 14,190,000
4,300,000 Collier County, FL HFA, Multi-Family Revenue
Bonds (Series 1985)
Weekly VRDNs (River Reach Project)/(Morgan
Guaranty Trust Co.,
New York LOC) 4,300,000
9,000,000 Dade County, FL HFA, (Series 1996), 4.00% TOBs
(FGIC INV),
Mandatory Tender 10/1/1997 9,000,000
11,500,000 Dade County, FL HFA, Hospital Revenue Bonds
(Series 1995) Weekly
VRDNs (Miami Children's Hospital
Project)/(AMBAC INS)/
(SunTrust Bank, Atlanta LIQ) 11,500,000
1,800,000 Dade County, FL IDA, IDRB (Series 1995) Weekly
VRDNs (June
Leasing Co. Project (FL))/(First Union 1,800,000
National Bank of Florida LOC)
2,000,000 Dade County, FL IDA, IDRB (Series 1996A)
Weekly VRDNs
(U.S. Holdings, Inc.)/(First Union National 2,000,000
Bank of Florida LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 2,550,000 Dade County, FL Resource Recovery Facilities,
4.00% Bonds
(AMBAC INS), 10/1/1997 $ 2,550,000
11,000,000 Dade County, FL Water & Sewer System Weekly
VRDNs (FGIC INS)/
(Commerzbank AG, Frankfurt LIQ) 11,000,000
3,000,000 Duval County, FL HFA, Multifamily Housing
Revenue Bonds
(Series 1985 F) Weekly VRDNs (Lakes of Mayport
Apartments
Project)/(SunTrust Bank, Atlanta LOC) 3,000,000
3,900,000 Escambia County, FL HFA, SFM Revenue Bonds
(Series 1996B), 3.65%
TOBs (Trinity Funding Company INV), Mandatory 3,900,000
Tender 4/1/1997
6,250,000 Eustis Health Facilities Authority, FL,
(Series 1985) Weekly VRDNs
(Waterman Medical Center)/(Banque Paribas, 6,250,000
Paris LOC)
9,730,000 Eustis Health Facilities Authority, FL, Health
Facilities Revenue
Bonds, (Series 1992) Weekly VRDNs (Florida
Hospital/Waterman,
Inc. Project)/(Banque Paribas, Paris LOC) 9,730,000
9,220,000 Florida HFA Weekly VRDNs (Cornerstone Imaging,
Inc.)/(PNC Bank,
NA LOC) 9,220,000
6,920,000 (b)Florida HFA, Homeowner Mortgage Revenue
Bonds PT-88
(Series 1996-3) Weekly VRDNs (Banco Santander 6,920,000
LIQ)
4,700,000 Florida HFA, Housing Revenue Bonds (Series J)
Weekly VRDNs
(Ashley Lake Project)/(Barclays Bank PLC, 4,700,000
London LOC)
6,570,000 Florida HFA, Multifamily Housing Revenue Bonds
(1995 Series M)
Weekly VRDNs (Bainbridge Club Apartments
Project)/(PNC Bank,
Kentucky LOC) 6,570,000
5,380,000 Florida State Board of Education
Administration, (CR55D), 3.60%
TOBs (Citibank NA, New York LIQ), Optional 5,380,000
Tender 12/1/1996
2,500,000 (b)Florida State Department of Transportation,
(Series 1993A) Weekly
VRDNs (Norwest Bank Minnesota, Minneapolis 2,500,000
LOC)
7,960,000 Fort Lauderdale, FL Performing Arts Center
Authority Weekly
VRDNs (SunTrust Bank, Central Florida LOC) 7,960,000
3,620,000 Gainesville, FL Utilities Systems, (Series A),
7.75% Bonds (United
States Treasury PRF), 10/1/1997 (@102) 3,817,058
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 9,000,000 Greater Orlando (FL) Aviation Authority,
Airport Facilities
Subordinated CP Notes (Series B), 3.55%,
Mandatory Tender
12/13/1996 $ 8,999,190
3,000,000 Gulf Breeze, FL, Variable Rate Demand Revenue
Bonds (Series 1995A)
Weekly VRDNs (Florida Municipal Bond
Fund)/(Barnett Bank,
NA LOC) 3,000,000
6,900,000 Hillsborough County, FL Aviation Authority,
Bond Anticipation
Commercial Paper Notes, 3.65% CP (Tampa
International Airport)/
(National Westminster Bank, PLC, London LOC),
Mandatory Tender
1/14/1997 6,900,000
5,500,000 Hillsborough County, FL Aviation Authority,
Bond Anticipation
Commercial Paper Notes, 3.80% CP (Tampa
International Airport)/
(National Westminster Bank, PLC, London LOC),
Mandatory Tender
1/16/1997 5,500,000
2,000,000 Hillsborough County, FL IDA Weekly VRDNs
(Ringhager Equipment
Co.)/(Mellon Bank NA, Pittsburgh LOC) 2,000,000
2,400,000 Hillsborough County, FL IDA, (Series 1992)
Weekly VRDNs (SIFCO
Turbine Component Service)/(National City
Bank, Cleveland,
OH LOC) 2,400,000
1,400,000 Hillsborough County, FL IDA, IDRB (Series
1996) Weekly VRDNs
(VIGO Importing Company Project)/(Barnett 1,400,000
Bank, NA LOC)
17,975,000 Hillsborough County, FL IDA, PCR Refunding
Bonds Long Option
Period (CR-31I), 3.60% TOBs (Tampa Electric
Company)/(MBIA INS),
Optional Tender 4/1/1997 17,975,000
1,500,000 Hillsborough County, FL IDA, Variable Rate
Demand IDRB's
(Series 1996) Weekly VRDNs (Trident Yacht
Building Partnership
Project)/(First Union National Bank of Florida 1,500,000
LOC)
7,000,000 Indian River County, FL Hospital District,
(Series 1985) Weekly
VRDNs (Kredietbank N.V., Brussels LOC) 7,000,000
9,000,000 Jacksonville Health Facilities Authority,
Hospital Revenue
Improvement Bonds (Series 1994) Weekly VRDNs
(Baptist Medical
Center, FL)/(First Union National Bank of 9,000,000
Florida LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 6,425,000 Jacksonville, FL HFDC Daily VRDNs (River
Garden Project)/(Banque
Paribas, Paris LOC) $ 6,425,000
2,905,000 Jacksonville, FL HFDC, Health Facilities
Revenue Bonds (Series 1994)
Weekly VRDNs (River Garden/The Coves
Project)/(First Union
National Bank, Charlotte, NC LOC) 2,905,000
2,000,000 Jacksonville, FL HFDC, Health Facilities
Revenue Bonds (Series 1996)
Weekly VRDNs (Jacksonville Faculty Practice
Association Project)/
(NationsBank, South LOC) 2,000,000
1,000,000 Jacksonville, FL Weekly VRDNs (Metal
Sales)/(National City Bank,
Kentucky LOC) 1,000,000
6,000,000 Jacksonville, FL, Hospital Revenue Bonds
(Series 1989) Weekly
VRDNs (Baptist Medical Center, AL)/(First
Union National Bank,
Charlotte, NC LOC) 6,000,000
1,900,000 Jacksonville, FL, Hospital Revenue Bonds,
10.50% Bonds (Methodist
Hospital of Florida)/(United States Treasury 2,047,212
PRF), 10/1/1997 (@102)
4,300,000 Key West, FL Community Redevelopment Authority
Weekly VRDNs
(Pier House Joint Venture)/(PNC Bank, NA LOC) 4,300,000
1,000,000 Lee County, FL IDA, IDRB (Series 1994) Weekly
VRDNs (Baader
North America Corporation)/(Deutsche Bank, AG 1,000,000
LOC)
5,710,000 Manatee County, FL HFA Weekly VRDNs (Carriage
Club)/(Mellon
Bank NA, Pittsburgh LOC) 5,710,000
3,800,000 Manatee County, FL HFA, Multifamily Mortgage
Revenue Refunding
Bonds (Series 1989-A) Weekly VRDNs
(Hampton/McGuire L.P.)/
(Nationsbank, NA LOC) 3,800,000
1,000,000 Marion County, FL Health Facility Authority,
Multifamily Revenue
Bonds (1985 Series F) Weekly VRDNs (Paddock
Place Project)/
(SunTrust Bank, Atlanta LOC) 1,000,000
2,850,000 Marion County, FL IDA, IDRB (Series 1989)
Weekly VRDNs (Charter
Springs Hospital, Inc.)/(Bankers Trust Co., 2,850,000
New York LOC)
2,400,000 Martin County, FL IDA, Tender Industrial
Revenue Bonds (Series
1986) Weekly VRDNs (Tampa Farm Service, Inc.
Project)/(SunTrust
Banks, Inc. LOC) 2,400,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 5,800,000 Ocean Highway and Port Authority, Revenue
Bonds (Series 1990)
Weekly VRDNs (ABN AMRO Bank NV, Amsterdam LOC) $ 5,800,000
5,000,000 Orange County, FL HFA, (Series 1996B), 3.65%
TOBs (Westdeutsche
Landesbank Girozentrale INV), Mandatory Tender 5,000,000
4/1/1997
4,000,000 Orange County, FL HFA, Multifamily Housing
Refunding Revenue
Bonds (1992 Series A) Weekly VRDNs
(Smokewood/Sun Key
Apartments Project (FL))/(Citibank NA, New 4,000,000
York LOC)
11,630,000 Orange County, FL HFA, Multifamily Housing
Revenue Bonds
Weekly VRDNs (Sutton Place. Ltd. 11,630,000
Project)/(Nationsbank, NA LOC)
800,000 Orange County, FL, Health Facilities Authority
Weekly VRDNs
(Mayflower Retirement Community)/(Rabobank
Nederland,
Utrecht LOC) 800,000
18,125,000 (b)Orange County, FL, Health Facilities
Authority, CDC Municipal
Products, Inc. Class A Certificates (Series
1996 D-1) Weekly VRDNs
(FGIC INS)/(CDC Municipal Products, Inc. LIQ) 18,125,000
10,830,000 (b)Orange County, FL, Health Facilities
Authority, CDC Municipal
Products Class A Certificates (Series 1996
D-2) Weekly VRDNs (FGIC
INS)/(CDC Municipal Products, Inc. LIQ) 10,830,000
3,500,000 Pinellas County Industry Council, FL, IDRB
(Series 1994) Weekly
VRDNs (Genca Corporation Project)/(PNC Bank, 3,500,000
Ohio, NA LOC)
2,813,000 Pinellas County Industry Council, FL, IDRB
(Series 1995) Weekly
VRDNs (ATR International Inc., Project)/(First
Union National Bank
of Florida LOC) 2,813,000
6,000,000 Pinellas County, FL HFA, SFM Revenue Bonds
(Series B), 3.40% TOBs
(Trinity Funding Company INV), Mandatory 6,000,000
Tender 3/1/1997
11,900,000 Pinellas County, FL Health Facility Authority
Daily VRDNs (Chase
Manhattan Bank NA, New York LOC) 11,900,000
2,645,000 Pinellas County, FL Health Facility Authority,
(Series 1987) Weekly
VRDNs (St. Mark Village Project)/(NationsBank, 2,645,000
South LOC)
3,200,000 (b)Pinellas County, FL Health Facility
Authority, SFM Revenue Bonds
(Series PA-92) Weekly VRDNs (GNMA
COL)/(Merrill Lynch Capital
Services, Inc. LIQ) 3,200,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 1,000,000 Polk County, FL IDA, Variable Rate Demand
IDRB's (Series 1996)
Weekly VRDNs (Ytong Florida, Ltd.
Project)/(First Union National
Bank of Florida LOC) $ 1,000,000
8,300,000 Putnam County, FL Development Authority,
Floating/Fixed Rate
Poll Control Revenue Bonds (Pooled Series 1984
H-4), 3.80% TOBs
(Seminole Electric Cooperative, Inc
(FL))/(National Rural Utilities
Cooperative Finance Corp. LOC), Optional 8,300,000
Tender 3/15/1997
4,165,000 Putnam County, FL Development Authority, PCR
Bonds (Pooled
Series 1984S) Weekly VRDNs (Seminole Electric
Cooperative, Inc
(FL))/(National Rural Utilities Cooperative 4,165,000
Finance Corp. LOC)
5,550,000 Putnam County, FL Development Authority, PCR
Bonds (Series
1984H) Weekly VRDNs (Seminole Electric
Cooperative, Inc (FL))/
(National Rural Utilities Cooperative Finance 5,550,000
Corp. LOC)
3,040,000 (d)Sarasota County, FL IDRB, (Series 1994),
3.60%, Monthly VRDNs
(Resource Recovery Systems of Sarasota
Project)/(Fleet National
Bank, Providence, RI LOC), 11/1/1996 3,040,000
3,000,000 Sarasota County, FL Public Hospital District,
Series 1993A, 3.60% CP
(Sarasota Memorial Hospital), Mandatory Tender 3,000,000
1/28/1997
1,500,000 Sarasota, FL, Educational Facilities Revenue
Bonds (Series 1996)
Weekly VRDNs (Ringling School of Art and
Design, Inc.)/(SunTrust
Bank, Central Florida LOC) 1,500,000
4,600,000 Seminole County, FL Health Facility Authority
IDA, (Series 1991)
Weekly VRDNs (Florida Living Nursing
Center)/(Barnett Bank,
NA LOC) 4,600,000
4,350,000 St. Lucie County, FL PCR, Pollution Ctrl
Revenue Refunding Bonds
(Series 1994A), 3.70% CP (Florida Power &
Light Co.), Mandatory
Tender 1/29/1997 4,350,000
7,720,000 St. Lucie County, FL, IDR Bonds (Series 1985)
Weekly VRDNs
(Savannahs Hospital)/(NationsBank, South LOC) 7,720,000
1,400,000 Sumter County, FL IDA Weekly VRDNs (Great
Southern Wood of
Florida)/(SouthTrust Bank of Alabama, 1,400,000
Birmingham LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 10,000,000 Sunshine State Governmental Finance
Commission, FL, 3.60% CP
(Morgan Guaranty Trust Co., New York, National
Westminster Bank,
PLC, London and Union Bank of Switzerland,
Zurich LOCs),
Mandatory Tender 2/19/1997 $ 10,000,000
16,385,000 Sunshine State Governmental Finance
Commission, FL, 3.60% CP,
Mandatory Tender 1/10/1997 16,385,000
6,050,000 Sunshine State Governmental Finance
Commission, FL, 3.70% CP,
Mandatory Tender 1/29/1997 6,050,000
13,500,000 (b)TEB Municipal Trust I, Class A Floating Rate
Receipts Weekly VRDNs
(Uniforet Inc.)/(Bank One, Columbus, NA LOC) 13,500,000
2,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs
(Arch Aluminum &
Glass Co., Inc. Project)/(Mellon Bank NA, 2,300,000
Pittsburgh LOC)
6,200,000 Titusville, FL, Multi-Purpose Revenue Bonds,
Installment 1995A
Weekly VRDNs (Banque Paribas, Paris LOC) 6,200,000
2,565,000 Volusia County, FL HFA Weekly VRDNs
(Fisherman's Landing)/
(Mellon Bank NA, Pittsburgh LOC) 2,565,000
2,060,000 Volusia County, FL Health Facilities
Authority, (Series 1994A)
Weekly VRDNs (Southwest Volusia Healthcare
Corp.)/(First Union
National Bank, Charlotte, NC LOC) 2,060,000
1,625,000 Volusia County, FL IDA Weekly VRDNs (Crane
Cams)/(First
Interstate Bank of Arizona, NA LOC) 1,625,000
2,800,000 Wakulla County, FL IDA Weekly VRDNs (Winco
Utilities, Inc.
Project)/(Barnett Bank, NA LOC) 2,800,000
Total 463,930,979
KENTUCKY--2.7%
14,400,000 Kentucky Pollution Abatement & Water Resource
Finance Authority
Daily VRDNs (Toyota Motor Credit Corp.) 14,400,000
MICHIGAN--1.1%
6,000,000 Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Series
1995) Weekly VRDNs (United Waste Systems,
Inc.)/(Bank of America
Illinois LOC) 6,000,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--3.3%
$ 2,955,000 Byron, MN IDB Weekly VRDNs (Schmidt
Printing)/(Norwest Bank
Minnesota, Minneapolis LOC) $ 2,955,000
5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs
(Jerome Foods)/
(Norwest Bank Minnesota, Minneapolis LOC) 5,000,000
3,800,000 Minnesota State Higher Education Coordinating
Board, (Series 1992A)
Weekly VRDNs (First Bank NA, Minneapolis LIQ) 3,800,000
2,100,000 Owatonna, MN, Hospital Revenue Bonds Weekly
VRDNs (Health
Central System)/(Norwest Bank Minnesota, 2,100,000
Minneapolis LOC)
3,600,000 White Bear, MN Weekly VRDNs (Thermoform
Plastic, Inc.)/(Norwest
Bank Minnesota, Minneapolis LOC) 3,600,000
Total 17,455,000
OHIO--1.1%
3,800,000 Ohio HFA, Trust Receipts, (Series 1996
FR/RI-5) Weekly VRDNs
(Bank of New York, New York LIQ)/(GNMA LOC) 3,800,000
2,000,000 Ohio State Water Development Authority, Ohio
PCR Bonds (Series
1989) Weekly VRDNs (Duquesne Light Power
Co.)/(Barclays Bank
PLC, London LOC) 2,000,000
Total 5,800,000
PUERTO RICO--0.9%
5,000,000 Puerto Rico Government Development Bank, 3.65%
CP, Mandatory
Tender 2/14/1997 5,000,000
TENNESSEE--0.5%
2,300,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds
(Series 1996) Weekly
VRDNs (M4 Environmental L.P.
Project)/(SunTrust Bank,
Atlanta LOC) 2,300,000
200,000 South Pittsburg, TN IDB, (Series 1996) Weekly
VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, 200,000
Nashville LOC)
Total 2,500,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
TEXAS--3.0%
$ 10,750,000 Angelina and Neches River Authority, Texas,
Solid Waste Disposal
Revenue Bonds (Series 1993), 3.70% CP
(Temple-Eastex Inc. Project)/
(Temple-Inland, Inc. GTD), Mandatory Tender $ 10,750,000
12/12/1996
5,000,000 Texas State, 4.75% TRANs, 8/29/1997 5,031,153
Total 15,781,153
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 530,867,132
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 33.4% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSRO's") or unrated securities of comparable quality. 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $69,265,000 which represents 13% of net assets.
(c) Also represents cost for federal tax purposes.
(d) Current rate and next reset date shown.
Note: The categories of investments are shown as a percentage of net assets
($532,816,645) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
CP -- Commercial Paper
FGIC -- Financial Guaranty Insurance Company
GNMA -- Government National Mortgage Association
GTD -- Guaranty
HFA -- Housing Finance Authority
HFDC -- Health Facility Development Corporation
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bond
INS -- Insured
INV -- Investment Agreement
LIQ -- Liquidity Agreement
LOCs -- Letter(s) of Credit
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
PRF -- Prerefunded
SFM -- Single Family Mortgage
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost $530,867,132
and value
Cash 326,304
Income receivable 2,448,806
Deferred expenses 23,988
Total assets 533,666,230
LIABILITIES:
Payable for shares redeemed $ 6,687
Income distribution payable 612,866
Accrued expenses 230,032
Total liabilities 849,585
NET ASSETS for 532,816,645 shares outstanding $532,816,645
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$500,992,905 / 500,992,905 shares outstanding $1.00
CASH II SHARES:
$31,823,740 / 31,823,740 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 14,309,120
EXPENSES:
Investment advisory fee $ 1,558,498
Administrative personnel 294,886
and services fee
Custodian fees 52,742
Transfer and dividend 48,434
disbursing agent fees and
expenses
Directors'/Trustees' fees 4,998
Auditing fees 13,156
Legal fees 13,564
Portfolio accounting fees 91,304
Distribution services fee 113,244
-- Cash II Shares
Shareholder services fee -- 860,815
Institutional Shares
Shareholder services fee -- 113,244
Cash II Shares
Share registration costs 146,642
Printing and postage 24,078
Insurance premiums 5,701
Miscellaneous 3,504
Total expenses 3,344,810
Waivers --
Waiver of investment $ (1,071,607)
advisory fee
Waiver of distribution (67,947)
services fee -- Cash II
Shares
Waiver of shareholder (206,595)
services fee --
Institutional Shares
Total waivers (1,346,149)
Net expenses 1,998,661
Net investment $ 12,310,459
income
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 12,310,459 $ 4,683,407
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net
investment income
Institutional Shares (10,917,907) (4,683,407)
Cash II Shares (1,392,552) --
Change in net assets resulting
from distributions to
shareholders (12,310,459) (4,683,407)
SHARE TRANSACTIONS --
Proceeds from sale of shares 2,270,320,962 1,361,774,097
Net asset value of shares issued
to shareholders in payment of
distributions declared 6,801,443 2,166,363
Cost of shares redeemed (1,897,652,278) (1,264,560,129)
Change in net assets resulting 379,470,127 99,380,331
from share transactions
Change in net assets 379,470,127 99,380,331
NET ASSETS:
Beginning of period 153,346,518 53,966,187
End of period $ 532,816,645 $ 153,346,518
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FLORIDA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Cash Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of sixteen portfolios. The
financial statements included herein are only those of Florida Municipal
Cash Trust (the "Fund"). The financial statements of the other portfolios
are presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and
to maintain an investment portfolio that will cause its shares to be exempt
from the Florida intangibles tax.
The Fund offers two classes of shares: Institutional Shares and Cash II
Shares.
Effective November 17, 1995, the Fund added Cash II Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee. Additional information on each
restricted security held at October 31, 1996, is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATA ACQUISITION COST
<S> <C> <C>
Clipper Florida Tax-Exempt Trust, Class A 6/14/1996-
Certificates of Participation, Series 6/19/1996 $14,190,000
1996-3B
Florida HFA, Homeowner Mortgage
Revenue Bonds PT-88 (Series 1996-3) 9/27/1996 6,920,000
Florida State Department of
Transportation, (Series 1993A) 7/23/1996 2,500,000
Orange County, FL, Health Facilities
Authority,
CDC Municipal Products, Inc. Class A
Certificates (Series 1996 D-1) 9/3/1996 18,125,000
Orange County, FL, Health Facilities
Authority,
CDC Municipal Products, Inc. Class A
Certificates (Series 1996 D-2) 5/5/1995 10,830,000
Pinellas County, FL Health Facility
Authority,
SFM Revenue Bonds (Series PA-92) 3/3/1995 3,200,000
TEB Municipal Trust I, Class A Floating
Rate Receipts 8/27/1996 13,500,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$532,816,645. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1996 1995
<S> <C> <C>
Shares sold 1,967,231,853 1,361,774,097
Shares issued to shareholders in 6,801,419 2,166,363
payment of distributions declared
Shares redeemed (1,626,386,885) (1,264,560,129)
Net change resulting from 347,646,387 99,380,331
Institutional Shares transactions
<CAPTION>
PERIOD ENDED OCTOBER 31,
CASH II SHARES 1996(A) 1995
<S> <C> <C>
Shares sold 303,089,109 --
Shares issued to shareholders in 24 --
payment of distributions declared
Shares redeemed (271,265,393) --
Net change resulting from 31,823,740 --
Institutional Shares transactions
Net change resulting from share 379,470,127 99,380,331
transactions
</TABLE>
(a) For the period from November 27, 1995 (date of initial public
investment) to October 31, 1996.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Institutional Shares and Cash II Shares.
The Plan provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Institutional Shares 0.25%
Cash II Shares 0.25%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
For the year ended October 31, 1996, Institutional Shares did not incur a
distribution services fee.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- Federated
Services Company ("FServ"), through its subsidiary, Federated Shareholder
Services Company ("FSSC") serves as transfer and dividend disbursing agent
for the Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $15,374 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $2,135 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $1,179,910,345 and $1,246,725,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 76.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 7.5% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(FLORIDA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Florida Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
of investments, as of October 31, 1996 and the related statement of
operations for the year then ended and the statement of changes in net
assets, and the financial highlights (see pages 2 and 14 of the prospectus)
for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Florida Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
Florida 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 PPG Place
Pittsburgh, PA 15222
FLORIDA MUNICIPAL
CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End, Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229758
005392 (12/96)
FLORIDA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
CASH II SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Florida Municipal Cash Trust (the ``Fund'), a portfolio
of Federated Municipal Trust (the ``Trust') dated December 31, 1996 .
This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229758
Cusip 314229683
G00537-01 (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
INVESTMENT LIMITATIONS 2
FEDERATED MUNICIPAL TRUST MANAGEMENT 3
Share Ownership 8
Trustees Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Total Return 16
Performance Comparisons 16
Economic and Market Information 16
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 17
Institutional Clients 17
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 17
APPENDIX 18
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
FLORIDA INVESTMENT RISKS
Florida's economic expansion continues to be among the strongest in the
region. Employment and population have been on the increase since 1991. The
state's economic forecast predicts modest growth through 1996, slightly
outpacing national averages. Labor force growth has been consistent since
1992, and service, construction, and trade sectors comprise more than 64%
of the state's labor force. The unemployment rate through 1996 is estimated
at 5.9%, down from a recessionary peak of 8.2% in 1992.
Florida continues to experience strong population growth, but at
decelerating rates. The over 65 group is no longer the fastest growing
component. Personal income continues to grow. After setbacks in the early
1990s because of recession and natural disasters, personal income growth is
now above the national average (5.9% for Florida, 5.5% nationally).
Florida's debt structure is complex, differing from other states in that
almost all of its General Obligation Debt is secured from dedicated taxes
with full faith and credit as a back-up. Also, special obligations are
mostly issued in the state's name and responsibility for the debt is taken
by the state, subject to a pledged revenue source.
In Florida, a state income tax is unconstitutional. Therefore, the
resulting heavy dependence on sales tax revenues makes the general fund
vulnerable to recession.
In 1994, Florida voters approved a revenue limit which allows annual
revenue to grow by the average of annual personal income growth over the
previous five years. This limit along with growth pressure and the
vulnerability of the sales tax present a challenge to Florida if it intends
to continue its expansion.
The Fund's concentration in securities issued by the state and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the state or its municipalities to meet their obligation will depend on
the availability of tax and other revenues; economic, political, and
demographic conditions within the state; and the underlying condition of
the state, 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 the value 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold portfolio securities permitted by its investment objective, policies,
and limitations or 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 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 invest 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,
except that the Fund may invest 25% or more of the value of its total
assets in cash, cash items, or securities issued or guaranteed by the
government of the United States or its agencies, or instrumentalities and
repurchase agreements collateralized by such U.S. government securities.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees, non-negotiable
time deposits and repurchase agreements providing for settlement in more
than seven days after notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of November 26, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Shares of the Florida Municipal Cash
Trust: Charles Schwab & Company, Inc., (as record owner holding
Institutional Shares for its clients), San Francisco, California owned
approximately 207,671,958 shares (42.74%); St. Joe Container Corp.,
Jacksonville, Florida owned approximately 91,076,616 shares (18.74%).
As of December 2, 1996, the following shareholder of record owned 5% or
more of the outstanding Cash II Shares of the Florida Municipal Cash Trust:
Trustman, Trust Company Bank, (as record owner holding Cash II Shares for
its clients), Atlanta, Georgia owned approximately 73,525,976 shares
(99.98%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 31,1996, 1995 and 1994, the adviser earned $1,558,498,
$522,992, and $20,127, respectively, of which $1,071,607, $480,076 and
$20,127, respectively, were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services, Inc. may
hereinafter collectively be referred to as the `Administrators.'' For the
fiscal years ended October 31, 1996, 1995 and 1994, the Administrators
earned $294,886, $125,000, and $13,699, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities 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 Plan, the Trustees expect 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 seeking to achieve its investment objectives. By
identifying potential investors whose needs are served by the Fund `s
objectives, and properly servicing these accounts, the Fund may be able 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 ended October 31, 1996, payments in the amount of
$113,244 were made pursuant to the Plan for Cash II Shares. In addition,
for the fiscal period period ended October 31, 1996, the Fund paid
shareholder service fees in the amounts of $860,815 and $113,244 on behalf
of Institutional Shares and Cash II Shares, respectively, of which $206,595
and $0 were voluntarily waived.
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.
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.
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, 1996, the yields for
Institutional Shares and Cash II Shares were 3.11% and 2.95%, 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, 1996, the effective yields for
Institutional Shares and Cash II Shares were 3.16% and 3.00%, 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 39.6% tax rate (the maximum
effective rate for individuals) and assuming that the income is 100% tax
exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yields
for Institutional Shares and Cash II Shares were 5.23% and 4.97%,
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 1996
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
TAXABLE YIELD EQUIVALENT FOR 1996
State of Florida
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1 $40,101 $96,901 $143,701 OVER
RETURN 40,100 96,900 147,700 263,750 263,750
SINGLE $1 $24,001 $58,151 $121,301 OVER
RETURN 24,000 58,150 121,300 263,750 263,750
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.38% 1.59% 1.65% 1.76% 1.86%
1.50% 1.96% 2.28% 2.37% 2.54% 2.68%
2.00% 2.55% 2.98% 3.10% 3.33% 3.51%
2.50% 3.14% 3.67% 3.82% 4.11% 4.34%
3.00% 3.73% 4.37% 4.55% 4.89% 5.17%
3.50% 4.32% 5.06% 5.27% 5.67% 5.99%
4.00% 4.91% 5.76% 6.00% 6.45% 6.82%
4.50% 5.49% 6.45% 6.72% 7.23% 7.65%
5.00% 6.08% 7.14% 7.45% 8.01% 8.48%
5.50% 6.67% 7.84% 8.17% 8.79% 9.31%
6.00% 7.26% 8.53% 8.90% 9.58% 10.13%
6.50% 7.85% 9.23% 9.62% 10.36% 10.96%
7.00% 8.44% 9.92% 10.34% 11.14% 11.79%
7.50% 9.02% 10.62% 11.07% 11.92% 12.62%
8.00% 9.61% 11.31% 11.79% 12.70% 13.45%
Note: The State of Florida levies a tax on intangible personal
property, such as stocks, bonds and other evidences of indebtedness,
at the rate of $2.00 per $1,000 of the properties' market value as of
January 1st. Because this is a tax on the value of an investment as
opposed to the income generated therefrom, it becomes more difficult
to include its effect in an income-derived equivalent yield table. In
an effort to simplify your analysis, this table has been prepared
assuming an across-the-board 20 basis point incremental benefit
resulting from the avoidance of this tax.
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.
For the one-year period ended October 31, 1996, and for the period from
September 21, 1994 (date of initial public investment), through October 31,
1996, the average annual total returns were 3.20% and 3.39%, respectively
for Institutional Shares. For the period from November 27, 1995 (date of
initial public investment) through October 31, 1996, the cumulative total
return was 2.80% for Cash II Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division. Trust
Organizations
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys perfromed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Massachusetts Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Massachusetts
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Massachusetts, or its political subdivisions and financing authorities, but
which provide current income exempt from federal regular income tax and
Massachusetts state income tax consistent with stability of principal.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Massachusetts Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional
Service Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--1784 FUNDS SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee................................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)......................................................................... 0.33%
12b-1 Fee..................................................................................... ............ None
Total Other Expenses...................................................................................... 0.22%
Shareholder Services Fee (after waiver) (2).................................................. 0.00%
Total Operating Expenses (3).................................................................... 0.55%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 0.97% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Services Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period............................................................... $ 6 $ 18 $ 31 $ 69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00$ 1.00
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.03
- ---------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.03)
- --------------------------------------------- --------- --------- --------- --------- --------- --------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- --------- --------- --------- --------- --------- --------- -------
TOTAL RETURN (b) 3.07% 3.34% 2.14% 1.99% 2.87% 4.63% 2.59%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 0.55% 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%*
- ---------------------------------------------
Net investment income 3.02% 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%*
- ---------------------------------------------
Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%*
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $119,739 $99,628 $90,013 $84,524 $85,570 $81,681 $63,483
- ---------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 18, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect sales charge or contingent
deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees have established two classes of shares known as Institutional Service
Shares and 1784 Funds Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for financial
institutions acting in an agency capacity as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term
municipal securities. The Fund may not be a suitable investment for retirement
plans or for non-Massachusetts taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 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
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and Massachusetts state income tax
consistent with stability of principal. 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 complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 Massachusetts state income
tax. (Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 Massachusetts and its political subdivisions and financing
authorities, and obligations of other states, territories, and possessions of
the United States, including the District of Columbia, and any political
subdivision or financing authority of any of these, the income from which is, in
the opinion
of qualified legal counsel, exempt from federal regular income tax and
Massachusetts state income tax ("Massachusetts Municipal Securities"). Examples
of Massachusetts Municipal Securities include, but are not limited to:
tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
bond anticipation notes 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 Massachusetts
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Massachusetts
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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in tax-exempt or taxable securities, all of comparable quality
to other securities in which the Fund invests, 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 institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Massachusetts
Municipal Securities is subject to the federal alternative minimum tax.
MASSACHUSETTS MUNICIPAL SECURITIES
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and
sewer works. They are also issued to repay outstanding obligations, to raise
funds for general operating expenses, and to make loans to other public
institutions and facilities.
Massachusetts Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of Massachusetts 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 Massachusetts Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size 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 Massachusetts 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 Massachusetts
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Massachusetts 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 Massachusetts 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 Massachusetts 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. Due to these considerations, the Fund's
concentration in Massachusetts Municipal Securities may entail a greater level
of risk than other types of money market funds.
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 not invest more than 10% of its
net assets in securities subject to restrictions on resale under the Securities
Act of 1933. These investment limitations cannot be changed without shareholder
approval. The following limitation may be changed without shareholder approval.
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.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on
April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such
persons owe a fiduciary duty to the Fund's shareholders and must place the
interests of shareholders ahead of the employees' own interests. Among other
things, the codes: require preclearance and periodic reporting of personal
securities transactions; prohibit personal transactions in securities being
purchased or sold, or being considered for purchase or sale, by the Fund;
prohibit purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. 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 the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate as which relates to the average aggregate daily net assets of all
funds advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 over a
90-day period. Financial institutions may impose different minimum investment
requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling 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 in order to begin earning dividends that same day. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Massachusetts Municipal Cash Trust--Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire transfers
are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Massachusetts Municipal Cash
Trust-Institutional Service Shares. Please include an account number on the
check. Orders by mail are considered received when payment by check is converted
into federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Services Company receives
the redemption request. According to the shareholder's instructions, redemption
proceeds can be sent to the financial institution or to the shareholder by check
or by wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution for
this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Under limited circumstances,
arrangements may be made with the distributor for same-day payment of proceeds,
without that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through ACH
will not be wired until that method of payment has cleared. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend
declared on the shares to be redeemed until the check is presented to UMB Bank,
N.A., the bank responsible for administering the check writing program, for
payment. However, checks should never be made payable or sent to UMB Bank, N.A.
or the Fund to redeem shares, and a check may not be written to close an
account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $25,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class are entitled to
vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of December 2, 1996 John & Co., Burlington, Massachusetts, acting in various
capacities for numerous accounts, was the owner of record of 100% of the 1784
Funds Shares of the Fund, and therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
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, within the limits of its investment policies, 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
Massachusetts. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
MASSACHUSETTS TAXES. Under existing Massachusetts laws, distributions made by
the Fund will not be subject to Massachusetts personal income taxes to the
extent that such dividends qualify as exempt interest dividends under the
Internal Revenue Code, and represent (i) interest or gain on obligations issued
by the Commonwealth of Massachusetts, its political subdivisions or agencies; or
(ii) interest on obligations of the United States , its territories or
possessions to the extent exempt from taxation by the states pursuant to federal
law. Conversely, to the extent that the distributions made by the Fund are
derived from other types of obligations, such dividends will be subject to
Massachusetts personal income taxes.
Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts excise
tax.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called 1784 Funds Shares that are
sold primarily to retail customers of the banking subsidiaries of Bank of
Boston. 1784 Funds Shares are sold at net asset value and are subject to a
Shareholder Services Agreement. Investments in 1784 Funds Shares are subject to
a minimum initial investment of $1,000.
Instututional Service Shares and 1784 Funds Shares are subject to certain of the
same expenses.
Expense differences, however, between Institutional Service Shares and 1784
Funds Shares may affect the performance of each class.
To obtain more information and a prospectus for 1784 Funds Shares, investors may
call 1-800-252-1784.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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
the Fund's tax-exempt yield, assuming a specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
MASSACHUSETTS MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS--1784 FUNDS SHARES
(FORMERLY, BAYFUNDS SHARES)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.03 0.03 0.02 0.01
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.02) (0.01)
- ----------------------------------------------------------------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------- --------- --------- --------- -----------
TOTAL RETURN (b) 3.05% 3.30% 2.05% 1.25%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 0.58% 0.60% 0.64% 0.65%*
- -----------------------------------------------------------------------
Net investment income 3.01% 3.25% 2.09% 1.85%*
- -----------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43%*
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $54,667 $46,580 $41,912 $18,143
- -----------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 8, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--99.3%
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--95.6%
--------------------------------------------------------------------------------------
$ 2,000,000 Attleboro, MA, 3.50% BANs, 2/6/1997 $ 2,000,513
--------------------------------------------------------------------------------------
2,000,000 Boston, MA Water & Sewer Commission, General Revenue Bonds
(1994 Series A) Weekly VRDNs (State Street Bank and Trust Co. LOC) 2,000,000
--------------------------------------------------------------------------------------
5,000,000 (b) Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) 5,000,000
--------------------------------------------------------------------------------------
3,465,000 (b) Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and
Trust Co. LIQ) 3,465,000
--------------------------------------------------------------------------------------
3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/ (Citibank NA, New York LIQ) 3,000,000
--------------------------------------------------------------------------------------
1,645,000 Commonwealth of Massachusetts, (Series B), 5.00% Bonds, 6/1/1997 1,656,134
--------------------------------------------------------------------------------------
3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) 3,200,000
--------------------------------------------------------------------------------------
2,500,000 Gardner, MA, 4.00% BANs, 4/1/1997 2,501,986
--------------------------------------------------------------------------------------
4,300,000 Hingham, MA, 3.75% BANs, 12/20/1996 4,300,671
--------------------------------------------------------------------------------------
3,925,000 Mashpee, MA, 4.00% BANs, 2/7/1997 3,929,061
--------------------------------------------------------------------------------------
8,200,000 Massachusetts Bay Transit Authority, (Series C), 3.55% CP (Westdeutsche Landesbank
Girozentrale LOC), Mandatory Tender
11/22/1996 8,200,000
--------------------------------------------------------------------------------------
700,000 Massachusetts HEFA Weekly VRDNs (Harvard University) 700,000
--------------------------------------------------------------------------------------
6,800,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank
Ltd, Osaka LOC) 6,800,000
--------------------------------------------------------------------------------------
2,200,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Endicott College)/ (Baybank, Burlington,
MA LOC) 2,200,000
--------------------------------------------------------------------------------------
3,320,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little
Wanderers)/(First National Bank of Boston, MA LOC) 3,320,000
--------------------------------------------------------------------------------------
2,600,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/ (Sanwa Bank Ltd, Osaka
LOC) 2,600,000
--------------------------------------------------------------------------------------
2,300,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) 2,300,000
--------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------------------------
$ 7,200,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) $ 7,200,000
--------------------------------------------------------------------------------------
5,500,000 Massachusetts HEFA, (Series G) Weekly VRDNs (Massachusetts Institute of Technology) 5,500,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts HEFA, 3.65% CP (Harvard University), Mandatory Tender 1/8/1997 5,000,000
--------------------------------------------------------------------------------------
500,000 Massachusetts IFA Weekly VRDNs (Berkshire, MA School)/(National Westminster Bank, PLC,
London LOC) 500,000
--------------------------------------------------------------------------------------
1,300,000 Massachusetts IFA Weekly VRDNs (Groton School)/(National Westminster Bank, PLC, London
LOC) 1,300,000
--------------------------------------------------------------------------------------
1,350,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/
(State Street Bank and Trust Co. LOC) 1,350,000
--------------------------------------------------------------------------------------
1,910,000 Massachusetts IFA, (1995 Series A) Weekly VRDNs (Bradford College Issue)/(First
National Bank of Boston, MA LOC) 1,910,000
--------------------------------------------------------------------------------------
300,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian
Imperial Bank of Commerce, Toronto LOC) 300,000
--------------------------------------------------------------------------------------
2,000,000 Massachusetts IFA, (Series 1992A) Weekly VRDNs (Ogden Haverhill)/ (Union Bank of
Switzerland, Zurich LOC) 2,000,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, (Series 1992B), 3.60% CP (New England Power Co.), Mandatory Tender
1/13/1997 5,000,000
--------------------------------------------------------------------------------------
3,000,000 Massachusetts IFA, (Series 1992B), 3.70% CP (New England Power Co.), Mandatory Tender
12/11/1996 3,000,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, (Series 1993A), 3.60% CP (New England Power Co.), Mandatory Tender
1/10/1997 5,000,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/
(Fleet Bank of New York LOC) 5,000,000
--------------------------------------------------------------------------------------
5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical
Research) 5,800,000
--------------------------------------------------------------------------------------
4,000,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury College)/ (Baybank, Burlington,
MA LOC) 4,000,000
--------------------------------------------------------------------------------------
1,525,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/ (Bank of Nova Scotia,
Toronto LOC) 1,525,000
--------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------------------------
$ 4,000,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(National
Westminster Bank, PLC, London LOC) $ 4,000,000
--------------------------------------------------------------------------------------
1,495,000 Massachusetts IFA, Museum Revenue Refunding Bonds (1996 Issue), 3.80% Bonds (Museum of
Fine Arts, Boston)/(MBIA INS), 1/1/1997 1,496,697
--------------------------------------------------------------------------------------
2,310,000 Massachusetts IFA, Refunding Revenue Bonds 1994 Project Daily VRDNs (Showa Womens
Institute Boston, Inc.)/(Bank of America NT and SA, San Francisco LOC) 2,310,000
--------------------------------------------------------------------------------------
6,255,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College
Issue)/(Baybank, Burlington, MA LOC) 6,255,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, Revenue Bonds (Series 1995C) Weekly VRDNs (Edgewood Retirement
Community Project)/(Dresdner Bank Ag, Frankfurt LOC) 5,000,000
--------------------------------------------------------------------------------------
1,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue Bonds
(1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 1,800,000
--------------------------------------------------------------------------------------
4,000,000 Massachusetts State HFA, (Series 50), 3.70% TOBs (Bayerische Landesbank Girozentrale
INV), Mandatory Tender 6/2/1997 4,000,000
--------------------------------------------------------------------------------------
2,500,000 Massachusetts Water Resources Authority, (Series 1994), 3.65% CP (Morgan Guaranty
Trust Co., New York LOC), Mandatory Tender
12/11/1996 2,500,000
--------------------------------------------------------------------------------------
2,000,000 Medway, MA, 4.50% BANs, 6/13/1997 2,008,980
--------------------------------------------------------------------------------------
757,140 Melrose, MA, 4.09% GANs, 4/8/1997 757,744
--------------------------------------------------------------------------------------
2,300,000 Melrose, MA, 4.25% BANs, 8/22/1997 2,304,472
--------------------------------------------------------------------------------------
3,080,000 Middleton, MA, 4.10% BANs, 9/5/1997 3,084,990
--------------------------------------------------------------------------------------
6,000,000 North Andover, MA, 4.00% BANs, 1/23/1997 6,003,004
--------------------------------------------------------------------------------------
3,773,100 North Andover, MA, 4.10% BANs, 9/11/1997 3,774,009
--------------------------------------------------------------------------------------
4,500,000 Springfield, MA , 4.50% BANs (Fleet National Bank, Providence,
R.I. LOC), 6/27/1997 4,514,094
--------------------------------------------------------------------------------------
1,725,000 Stoughton, MA, 3.51% BANs, 1/30/1997 1,725,244
--------------------------------------------------------------------------------------
2,514,160 Stoughton, MA, 3.75% BANs, 3/7/1997 2,517,093
--------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------------------------
$ 1,148,837 Yarmouth, MA, 3.40% RANs, 3/4/1997 $ 1,149,287
-------------------------------------------------------------------------------------- --------------
Total 166,758,979
-------------------------------------------------------------------------------------- --------------
PUERTO RICO--3.7%
--------------------------------------------------------------------------------------
5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 5,000,000
--------------------------------------------------------------------------------------
1,500,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance
Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque
Paribas, Paris LOC), Mandatory Tender 12/9/1996 1,500,000
-------------------------------------------------------------------------------------- --------------
Total 6,500,000
-------------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $ 173,258,979
-------------------------------------------------------------------------------------- --------------
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSRO's") or unrated securities of comparable quality. 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
97.2% 2.8%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $8,465,000 which represents 4.85% of net assets.
(c) Also represents cost for federal tax purposes.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($174,406,321) at
October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
CP--Commercial Paper
GANs--Grant Anticipation Notes
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IFA--Industrial Finance Authority
INS--Insured
INV--Investment Agreement
LIQ--Liquidity Agreement
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PLC--Public Limited Company
RANs--Revenue Anticipation Notes
SA--Support Agreement
TOBs--Tender Option Bonds
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 173,258,979
- ------------------------------------------------------------------------------------------------------
Cash 238,291
- ------------------------------------------------------------------------------------------------------
Income receivable 1,159,659
- ------------------------------------------------------------------------------------------------------
Receivable for shares sold 3,665
- ------------------------------------------------------------------------------------------------------ --------------
Total assets 174,660,594
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------
Payable for shares redeemed $ 5,151
- ------------------------------------------------------------------------------------------
Income distribution payable 184,990
- ------------------------------------------------------------------------------------------
Payable to transfer agent 23,413
- ------------------------------------------------------------------------------------------
Accrued expenses 40,719
- ------------------------------------------------------------------------------------------ ----------
Total liabilities 254,273
- ------------------------------------------------------------------------------------------------------ --------------
NET ASSETS for 174,406,321 shares outstanding $ 174,406,321
- ------------------------------------------------------------------------------------------------------ --------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS Per Share:
- ------------------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------------------------------
$119,738,845 / 119,738,845 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------------ --------------
1784 FUNDS SHARES:
- ------------------------------------------------------------------------------------------------------
$54,667,476 / 54,667,476 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------------ --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $ 6,129,748
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 856,487
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 155,108
- ------------------------------------------------------------------------------------------
Custodian fees 26,446
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 60,024
- ------------------------------------------------------------------------------------------
Sub-transfer agent fees--1784 Funds Shares 13,090
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,603
- ------------------------------------------------------------------------------------------
Auditing fees 13,561
- ------------------------------------------------------------------------------------------
Legal fees 4,491
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 59,116
- ------------------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 299,707
- ------------------------------------------------------------------------------------------
Shareholder services fee--1784 Funds Shares 128,514
- ------------------------------------------------------------------------------------------
Share registration costs 42,821
- ------------------------------------------------------------------------------------------
Printing and postage 20,600
- ------------------------------------------------------------------------------------------
Insurance premiums 4,302
- ------------------------------------------------------------------------------------------
Miscellaneous 1,899
- ------------------------------------------------------------------------------------------ ------------
Total expenses 1,688,769
- ------------------------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $ (297,835)
- -----------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (299,707)
- -----------------------------------------------------------------------------
Waiver of shareholder services fee--1784 Funds Shares (128,514)
- ----------------------------------------------------------------------------- -----------
Total waivers (726,056)
- ------------------------------------------------------------------------------------------ ------------
Net expenses 962,713
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income $ 5,167,035
- -------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 5,167,035 $ 4,506,984
- ---------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------------
Institutional Service Shares (3,622,277) (3,066,535)
- ----------------------------------------------------------------------------------
1784 Funds Shares (1,544,758) (1,440,449)
- ---------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to
shareholders (5,167,035) (4,506,984)
- ---------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 533,103,977 371,068,422
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 2,757,964 2,255,146
- ----------------------------------------------------------------------------------
Cost of shares redeemed (507,663,326) (359,040,754)
- ---------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 28,198,615 14,282,814
- ---------------------------------------------------------------------------------- --------------- ---------------
Change in net assets 28,198,615 14,282,814
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 146,207,706 131,924,892
- ---------------------------------------------------------------------------------- --------------- ---------------
End of period $ 174,406,321 $ 146,207,706
- ---------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Corporation consists of sixteen portfolios. The
financial statements included herein are only those of Massachusetts Municipal
Cash Trust (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: Institutional Service Shares and 1784 Funds
Shares (formerly BayFunds Shares). The investment objective of the Fund is
current income exempt from federal regular income tax and Massachusetts state
income tax consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some cases, the restricted securities may be resold without registration
upon exercise of a demand feature. Such restricted securities may be
determined to be liquid under criteria
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
established by the Board of Trustees (the "Trustees"). The Fund will not
incur any registration costs upon such resales. Restricted securities are
valued at amortized cost in accordance with Rule 2a-7 under the Act.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Clipper, MA Tax Exempt Trust Weekly VRDNs 5/15/95 $ 5,000,000
Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly
VRDNs 6/30/95 $ 3,465,000
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------------------------------
Shares sold 489,456,450 337,436,671
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,214,590 814,368
- ----------------------------------------------------------------------------------
Shares redeemed (470,559,983) (328,636,637)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from
Institutional Service Share transactions 20,111,057 9,614,402
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
1784 FUNDS SHARES
- ----------------------------------------------------------------------------------
Shares sold 43,647,527 33,631,751
- ----------------------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,543,374 1,440,778
- ----------------------------------------------------------------------------------
Shares redeemed (37,103,343) (30,404,117)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from
1784 Funds Share transactions 8,087,558 4,668,412
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions 28,198,615 14,282,814
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
At October 31, 1996, capital paid-in aggregated $174,406,321.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to .50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Institutional Service
Shares for the period. Under the terms of a Shareholder Services Agreement
with BayBank Systems, Inc., the Fund will pay BayBank Systems, Inc., up to
0.25% of average daily net assets of 1784 Funds Shares for the period.
These fees are used to finance certain services for shareholders and to
maintain shareholder accounts. FSS and BayBank Systems, Inc. may
voluntarily choose to waive any portion of their fees. FSS and BayBank
Systems, Inc. can modify or terminate these voluntary waivers at any time
at their sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $198,450,000 and $196,600,000, respectively.
GENERAL--Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 45.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 7.2% of total investments.
(6) SUBSEQUENT EVENT
Effective November 25, 1996, BayFunds Shares were renamed 1784 Funds Shares.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Massachusetts Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1996, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2 and 15 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Massachusetts Municipal Cash Trust
Institutional Service 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 Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- -----------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL
CASH TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of Federated
Municipal Trust, an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[LOGO OF FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and a subsidiary of Federated Investors.
Cusip 314229303
0032603A-ISS (12/96)
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Institutional Service Shares of Massachusetts Municipal
Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the
``Trust') dated December 31, 1996. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[LOGO]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229303
0032603B-ISS (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
MASSACHUSETTS INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustees Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
MASSACHUSETTS INVESTMENT RISKS
The Fund invests in obligations of Massachusetts issuers which results in
the Fund's performance being subject to risks associated with the overall
economic conditions present within Massachusetts (the "Commonwealth"). The
following information is a brief summary of the recent prevailing economic
conditions and a general summary of the Commonwealth's financial status.
This information is based on official statements relating to securities
that have been offered by Massachusetts issuers and from other sources
believed to be reliable but should not be relied upon as a complete
description of all relevant information.
The Commonwealth has a diverse economy with manufacturing, education,
health care, computers and financial services all being significant
contributors. Massachusetts is generally considered the leader in research
and development within the biotechnology, software and robotics industries
as well as having many highly prestigious universities. In addition to a
highly skilled and educated workforce, the Commonwealth has one of the
higher average per capita incomes in this country.
Beginning in the late 1980's, economic growth in the New England region and
Massachusetts, in particular, slowed and showed pronounced deterioration in
the construction, real estate, financial and manufacturing sectors. Between
1988 and 1992, there were extensive job losses that resulted in a 10%
reduction in the work force. Also, over the same period, property values in
the region experienced a similar decline. More recently, the Massachusetts
economy has experienced a slight recovery, however, at a slower pace than
the nation and there are signs that this recovery may be slowing. In
addition, after years of above average property value growth, property
values have decreased an estimated 6% over the same period.
The two major revenue sources available to cities and towns in
Massachusetts are local property taxes and local aid from the Commonwealth.
Property taxes are subject to limitations imposed by a state-wide
initiative approved by the voters in November, 1980 (commonly known as
Proposition 2-1/2), which limits the property taxes that may be levied by
any city or town in any fiscal year to the lesser of (i) 2.5% of the full
valuation of the real estate and personal property therein or (ii) 2.5%
over the previous year's levy limit plus any growth in the tax base from
new construction. In recent years the decrease in property values due to
the recession and the limitations of tax levy growth imposed by Proposition
2-1/2 have resulted in budget constraints for many cities and towns.
The overall financial condition of the Commonwealth can also be illustrated
by the changes of its debt ratings. During the period in which the
Commonwealth has experienced its financial difficulties beginning in 1988,
its general obligation long-term debt ratings as determined by Moody's and
S & P's decreased from Aa and AA+ to Baa and BBB respectively. Since then
the Commonwealth has had its debt ratings raised by the two rating agencies
to A1 and A+ by Moody's and S&P, respectively, reflecting improved fiscal
performance.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the Commonwealth or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the Commonwealth; and the underlying
fiscal condition of the Commonwealth and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as are necessary for
the clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money in amounts up to one-third of the value of its total
assets, including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as
a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of the value 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued Massachusetts Municipal Securities or
temporary investments or enter into repurchase agreements, in
accordance with its investment objective, policies, and limitations or
Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN 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.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry, or in industrial development bonds or
other securities the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of
its total assets are to be invested in the securities of a single
issuer, and no more than 25% of its total assets are to be invested in
the securities of a single issuer at the close of each quarter of each
fiscal year.
Under this limitation, each governmental subdivision, including
states, territories, possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalitites, or
similar entities will be considered a separate issuer if its assets
and revenues are separate from those of the governmental body creating
it and the security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of
a non-governmental 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.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN 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.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the oustanding Institutional Service Shares of the Fund: State
Street Bank and Trust Company, acting in various capacities for numerous
accounts, owned approximately 55,042,437 shares (38.98%); and John & Co.
owned approximately 17,474,106 shares (12.37%).As of the same date, the
following shareholders of record owned 5% or more of the outstanding 1784
Funds Shares of Massachusetts Municipal Cash Trust:John & Co., Burlington,
Massachusetts, acting in various capacities for numerous accounts, owned
approximately 53,216,829 shares (100%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996, 1995, and 1994, the adviser earned $856,487,
$686,918, and $643,293, respectively, of which $297,835, $276,299, and
$445,711, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, 1995,
and 1994, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996,
1995, and 1994, the Administrators earned $155,108, $155,000, and $195,483,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1996, the Fund paid no shareholder
service fees on behalf of Institutional Service Shares.
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 0.50% 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.
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.
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, 1996, the yield for
Institutional Service Shares was 3.00%.
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, 1996, the effective yield for
Institutional Service Shares was 3.04%.
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 51.60% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt. For the seven-day period ended October
31, 1996, the tax-equivalent yield for Institutional Service Shares was
6.20%.
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 1996
STATE OF MASSACHUSETTS
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 27.00% 40.00% 43.00% 48.00% 51.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00% 2.74% 3.33% 3.51% 3.85% 4.13%
2.50% 3.42% 4.17% 4.39% 4.81% 5.17%
3.00% 4.11% 5.00% 5.26% 5.77% 6.20%
3.50% 4.79% 5.83% 6.14% 6.73% 7.23%
4.00% 5.48% 6.67% 7.02% 7.69% 8.26%
4.50% 6.16% 7.50% 7.89% 8.65% 9.30%
5.00% 6.85% 8.33% 8.77% 9.62% 10.33%
5.50% 7.53% 9.17% 9.65% 10.58% 11.36%
6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
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.
The Fund's average annual total returns for the one-year and five-year
periods ended October 31, 1996 and for the period from May 18, 1990 (date
of initial public investment) through ended October 31, 1996 were 3.07%,
2.68% and 3.20%, respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund.
As of December 31, 1995, Federated Investors managed more than $40.2
billion in assets across approximately 47 money market funds, including 17
government, 10 prime and 20 municipal with assets approximating $20.9
billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
1784 FUNDS
-----------------
MONEY MARKET FUNDS
1784 U.S. Treasury Money Market Fund
1784 Prime Money Market Fund
1784 Tax-Free Money Market Fund
1784 Institutional U.S. Treasury Money Market Fund
BOND FUNDS
1784 U.S. Government Medium-Term Income Fund
1784 Short-Term Income Fund
1784 Income Fund
TAX-EXEMPT INCOME FUNDS
1784 Tax-Exempt Medium-Term Income Fund
1784 Connecticut Tax-Exempt Income Fund
1784 Florida Tax-Exempt Income Fund
1784 Massachusetts Tax-Exempt Income Fund
1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS
1784 Asset Allocation Fund
1784 Growth and Income Fund
1784 Growth Fund
1784 International Equity Fund
For more information,
call 1-800-252-1784.
[LOGO]
SOUND CHOICES, STRAIGHT TALK,
INVESTMENT MANAGEMENT STRENGTH.
FEDERATED SECURITEIS CORP.
- ----------------------------
Distributor
December 31, 1996
Cusip 314229835
G00507-01 (12/96) BKB F-040-01 REV 12/96
MASSACHUSETTS
MUNICIPAL
CASH TRUST
1784 Funds Shares
[LOGO]
--------------
PROSPECTUS
--------------
OCTOBER 31, 1996
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
1784 FUNDS SHARES
(FORMERLY, BAYFUNDS SHARES)
PROSPECTUS
The 1784 Funds Shares of Massachusetts Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a investment portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Massachusetts municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Massachusetts or its
political subdivisions and financing authorities, but which are exempt from the
federal regular income tax and Massachusetts state income tax. Shareholders can
invest, reinvest, or redeem 1784 Funds Shares at any time with no sales loads or
contingent deferred sales charges imposed by the Fund. Shareholders have access
to other portfolios in The 1784 Funds.
THE 1784 FUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF THE FIRST NATIONAL BANK OF BOSTON (BANK OF BOSTON) OR ITS AFFILIATES OR
SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY THE FIRST NATIONAL BANK OF
BOSTON (BANK OF BOSTON) OR ITS AFFILIATES OR SUBSIDIARIES, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTING IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. 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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS
ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in 1784 Funds Shares. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for 1784 Funds
Shares dated December 31, 1996, with the Securities and Exchange Commission
("SEC"). The information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Informationor a paper copy of this prospectus, if you
have received your prospectus electronically, free of charge by calling
1-800-252-1784. To obtain other information or to make inquiries about the Fund,
contact the Fund at the address listed at the back of this prospectus. The
Statement of Additional Information, material incorporated by reference into
this document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary of Fund Expenses...................................................... 1
Financial Highlights--1784 Funds Shares....................................... 2
General Information........................................................... 3
Investment Information........................................................ 4
Investment Objective and Policies........................................... 4
Acceptable Investments...................................................... 4
Massachusetts Municipal Securities.......................................... 6
Massachusetts Investment Risks.............................................. 6
Investment Limitations...................................................... 7
Shareholder Manual............................................................ 8
Pricing of Shares........................................................... 8
How to Buy Shares........................................................... 8
Automatic Investment Program................................................ 9
How to Exchange Shares......................................................10
How to Redeem Shares........................................................11
Additional Information You Should Know........................................13
Tax Information.............................................................13
Performance Information.....................................................14
Tax-Equivalency Table.......................................................15
Management, Distribution and
Administration...........................................................15
Investment Adviser..........................................................16
Distribution................................................................17
Administration..............................................................17
Other Classes of Shares.....................................................18
Financial Highlights--Institutional Service
Shares......................................................................19
Financial Statements..........................................................20
Report of Independent Public Accountants......................................32
Addresses......................................................Inside Back Cover
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
MASSACHUSETTS MUNICIPAL CASH TRUST
<TABLE>
<S> <C> <C>
1784 FUNDS SHARES
(FORMERLY, BAYFUNDS SHARES)
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)...................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee................................................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................................................ 0.33%
12b-1 Fee.................................................................................................... None
Total Other Expenses......................................................................................... 0.25%
Shareholder Services Fee (after waiver) (2).................................................. 0.00%
Total Operating Expenses (3)....................................................................... 0.58%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses would have been 1.00% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of 1784 Funds Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period........................................................................... $6 $19 $32 $73
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--1784 FUNDS SHARES
(FORMERLY, BAYFUNDS SHARES)
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1996 1995 1994 1993(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income 0.03 0.03 0.02 0.01
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.02) 0.01)
- --------------------------------------------------------------------------- --------- --------- --------- ----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------- --------- --------- --------- ----------
TOTAL RETURN (b) 3.05% 3.30% 2.05% 1.25%
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------
Expenses 0.58% 0.60% 0.64% 0.65%*
- ---------------------------------------------------------------------------
Net investment income 3.01% 3.25% 2.09% 1.85%*
- ---------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43%*
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Net assets, end of period (000 omitted) $54,667 $46,580 $41,912 $18,143
- ---------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 8, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
- -------------------------------------------------------------------------------
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GENERAL INFORMATION
As a shareholder of the 1784 Funds Shares class (the "Shares") of the Fund, you
have access to all of the portfolios of The 1784 Funds, an open-end, management
investment company. The 1784 Funds consists of fifteen separate, professionally
managed investment portfolios with distinct investment objectives and policies.
As of the date of this prospectus, 1784 Funds offers shares in fifteen
portfolios:
MONEY MARKET FUNDS
1784 U.S. TREASURY MONEY MARKET FUND; 1784 PRIME MONEY MARKET FUND; and 1784
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND seek to preserve principal value
and maintain a high degree of liquidity while providing current income.
1784 TAX-FREE MONEY MARKET FUND seeks to preserve principal value and maintain a
high degree of liquidity while providing current income exempt from federal
income tax.
These MONEY MARKET FUNDS are designed for conservative investors who want
liquidity, current income at money market rates and stability of principal.
BOND FUNDS
1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND seeks to provide current income
consistent with preservation of capital.
1784 SHORT-TERM INCOME FUND; and 1784 INCOME FUND seek to maximize current
income. Preservation of capital is a secondary objective.
These BOND FUNDS are designed for investors seeking current income.
TAX-EXEMPT FUNDS
1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND seeks to provide current income, exempt
from federal income tax, consistent with preservation of capital.
1784 CONNECTICUT TAX-EXEMPT INCOME FUND seeks to provide current income exempt
from both federal and Connecticut personal income tax. Preservation of capital
is a secondary objective.
1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND seeks to provide current income exempt
from both federal and Massachusetts personal income tax consistent with
preservation of capital.
1784 RHODE ISLAND TAX-EXEMPT INCOME FUND seeks to provide current income exempt
from federal income tax, Rhode Island personal income tax and Rhode Island
business corporation tax. Preservation of capital is a secondary objective.
These TAX-EXEMPT FUNDS are designed for investors seeking income that is exempt
from federal income tax, and who are seeking exemption from certain state taxes
in Connecticut, Massachusetts and Rhode Island.
STOCK FUNDS
1784 ASSET ALLOCATION FUND seeks to achieve a favorable rate of return through
current income and capital appreciation consistent with preservation of capital,
derived from investing in fixed income and equity securities.
1784 GROWTH AND INCOME FUND seeks to provide long-term growth of capital with a
secondary objective of income.
1784 GROWTH FUND seeks to provide capital appreciation. Dividend income, if any,
is incidental to this objective.
1784 INTERNATIONAL EQUITY FUND seeks to provide long-term growth of capital.
Dividend income, if any, is incidental to this objective.
These STOCK FUNDS are designed for long-term investors seeking high long-term
returns who can tolerate changes in the value of their investments.
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INVESTMENT INFORMATION
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax, and Massachusetts state income tax
consistent with stability of principal. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by complying
with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Massachusetts.
The Fund pursues its investment objective by investing primarily in a portfolio
of Massachusetts municipal securities with remaining maturities of 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 Massachusetts state income tax.
(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 changes in these policies
become effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Massachusetts state
income tax ("Massachusetts Municipal Securities").
Examples of Massachusetts municipal securities include, but are not limited to:
tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
bond anticipation notes 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 Massachusetts Municipal Securities from
financial institutions such as commercial and investment banks, savings
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
Massachusetts 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 on any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities or another third party,
and may not be transferred separately from the underlying security. The Fund
uses these arrangements to provide the Fund with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
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.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests 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 depository 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Massachusetts
Municipal Securities is subject to the federal alternative minimum tax.
MASSACHUSETTS MUNICIPAL SECURITIES
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Massachusetts Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of Massachusetts 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.
MASSACHUSETTS INVESTMENT RISKS
Yields on Massachusetts Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size 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 Massachusetts 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 Massachusetts Municipal Securities
acceptable for purchase by the Fund could become limited.
The Fund may invest in Massachusetts 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 Massachusetts 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 Massachusetts 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. Due to these risk considerations, the
Fund's concentration in Massachusetts Municipal Securities may entail a greater
level of risk than other types of money market funds.
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 not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval. The
following limitation may be changed without shareholder approval. 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.
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- -------------------------------------------------------------------------------
SHAREHOLDER MANUAL
PRICING OF SHARES
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting liabilities attributable to shares
from the value of Fund assets attributable to shares, and dividing the remainder
by the number of 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
The Fund offers Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). If
BayBank Systems, Inc. (the "Shareholder Servicing Agent") receives your purchase
order on a non-Business Day, the order will not be executed until the next
Business Day in accordance with the Distributor's procedures. The Fund and the
Distributor reserve the right to reject any purchase request.
HOW TO BUY SHARES
MINIMUM INVESTMENT
You can become a shareholder with an initial investment of $1,000. You must
submit a completed application at the time of your initial purchase. Subsequent
investments must be in amounts of at least $250, or if you participate in the
automatic investment program, the minimum for additional Share purchases is $50.
The Fund may waive any investment minimums from time to time. In addition, the
Fund may reduce or waive investment minimums for investors purchasing through
qualified BayBanks/
Bank of Boston accounts.
If your purchase order is received in good order and accepted by the Fund from
Federated Shareholder Services Company (the "Transfer Agent") by 1:00 p.m.
(Eastern time) on a Business Day, it will be executed at the net asset value
next determined and your Shares will begin earning dividends that day. The
Transfer Agent will not communicate your purchase order to the Fund until the
Shareholder Servicing Agent has received the purchase price in federal funds or
other immediately available funds. If your purchase order is received in good
order and accepted by the Fund from the Transfer Agent after 1:00 p.m. (Eastern
time), and prior to 4:00 p.m. (Eastern time), it will be executed at the net
asset value next determined and Shares will begin earning dividends the next
Business Day. When you purchase Shares by check, the order is considered
received when the check is converted into federal funds, normally within two
Business Days.
The Shareholder Servicing Agent is responsible for the prompt transmission of
purchase orders received in good order to the Transfer Agent.
BY PHONE
Once you are a shareholder, you may purchase additional Shares by calling
1-800-252-1784.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-252-1784 to receive the necessary
form and information on this Fund feature. The Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions
given by telephone are genuine. However, the Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.
The establishment of certain types of deposit account relationships with
BayBanks/Bank of Boston may permit the direct deduction of your purchase price
from your BayBanks/Bank of Boston deposit account. Please call 1-800-252-1784 to
determine whether your BayBanks/Bank of Boston deposit account qualifies.
For the protection of investors, all phone communications may be recorded where
not otherwise prohibited by law.
BY MAIL
If you make your initial Share purchase by mail, you must send a completed
application, and a check payable to the Fund, to:
1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
You may obtain an application by calling 1-800-252-1784.
You may make subsequent investments in the Fund at any time by sending a check
for a minimum of $250 payable to the Fund at the following address:
1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent investment form that may
be enclosed in the Fund mailing or can be obtained by calling 1-800-252-1784, or
(c) a letter stating the amount of the investment, the name of the Fund, the
exact name and address of the account, and your account number.
If the check does not clear, your purchase order will be cancelled.
BY WIRE
Purchases may also be made by wiring money from your bank account to your Fund
account. Call 1-800-252-1784 to receive wiring instructions.
Shares cannot be purchased by wire on days on which the New York Stock Exchange
and the Federal Reserve Wire System are not open for business and on the
following holidays: Martin Luther King Day, Columbus Day, or Veterans' Day.
THROUGH BAYBANKS/BANK OF
BOSTON OFFICES
You may place an order to purchase Shares in person through designated
BayBanks/Bank of Boston offices.
Purchase orders placed through BayBanks/Bank of Boston offices typically would
be received by the Transfer Agent within two Business Days. If you want more
prompt processing, you should consider another method, such as by phone as
described above.
AUTOMATIC INVESTMENT PROGRAM
When you participate in the automatic investment program, you can purchase
additional Shares in minimum amounts of $50. You must previously have authorized
in writing the total dollar amount to be deducted automatically from eligible
BayBanks/Bank of Boston deposit accounts or your deposit account maintained at a
domestic financial institution which is an automated clearing house member, and
the frequency of the deductions. The funds will be invested in Shares at the net
asset value next determined. The Fund may reduce or waive the investment
minimums for investors purchasing
through qualified BayBanks/Bank of Boston accounts.
HOW TO EXCHANGE SHARES
1784 Funds consist of: 1784 U.S. Treasury Money Market Fund, 1784 Prime Money
Market Fund, 1784 Institutional U.S. Treasury Money Market Fund, 1784 Tax-Free
Money Market Fund, 1784 Government Medium-Term Income Fund, 1784 Short-Term
Income Fund, 1784 Income Fund, 1784 Tax-Exempt Medium Term Income Fund, 1784
Connecticut Tax-Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income Fund,
1784 Rhode Island Tax-Exempt Income Fund, 1784 Asset Allocation Fund, 1784
Growth and Income Fund, 1784 Growth Fund, and 1784 International Equity Fund.
You may redeem Shares and purchase shares of any other of the 1784 Funds
("Participating Funds") in which you have an account. The minimum initial
investment to establish an account in any other Participating Fund is $1,000
($100,000 for 1784 Institutional U.S. Treasury Money Market Fund). 1784 Funds do
not charge any fees for these transactions.
Shares will be redeemed at the net asset value next determined after the
Transfer Agent receives the redemption request and Shares of the Participating
Fund to be acquired will be purchased at the net asset value per share next
determined after receipt of the redemption proceeds by the Transfer Agent for
the acquired fund on a Business Day.
If you do not have an account in the Participating Fund whose shares you want to
acquire, you must establish an account. Prior to any such transaction, you must
receive a copy of the current prospectus of the Participating Fund into which a
purchase is to be effected. This account will be registered in the same name and
you will receive your dividends and distributions as an automatic reinvestment
in additional shares. If the new account registration (name, address, and
taxpayer identification number) is not identical to your existing account,
please call 1-800-252-1784 for the necessary new account or transfer procedures.
You may find this privilege useful if your investment objectives or market
outlook should change after you invest in the Fund or in any of the
Participating Funds. You may obtain further information on this privilege and
obtain a prospectus by calling 1-800-252-1784.
The exchange privilege is available to shareholders resident in any state in
which Participating Funds' shares being acquired may be sold.
1784 Funds reserves the right to terminate this privilege at any time.
Shareholders will be notified if this privilege is terminated.
Depending on the circumstances, an exchange with a fluctuating net asset value
Participating Fund may generate a short-term or long-term capital gain or loss
for federal income tax purposes.
BY PHONE
You may provide instructions to redeem Shares and purchase shares of any
Participating Funds by calling 1-800-252-1784.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-252-1784 to receive the necessary
form and information on this Fund feature. The Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, the Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.
BY MAIL
You may send a written request to redeem Shares and purchase shares of any
Participating Funds to:
1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
Your written request must include your name and tax identification number; the
name of the Fund, the dollar amount or number of Shares to be redeemed; the name
of the Participating Fund in which shares are to be purchased; and your account
number. Your request must be signed by the registered owner(s) exactly as
required by the account application.
THROUGH BAYBANKS/BANK OF
BOSTON OFFICES
You may place an order to redeem Shares and purchase shares of any Participating
Funds in person through designated BayBanks/Bank of Boston offices.
Orders received through designated BayBanks/ Bank of Boston offices typically
would be received by the Transfer Agent within two Business Days. For more
prompt processing, you should consider another method, such as exchanging shares
by phone as described above.
HOW TO REDEEM SHARES
The Fund redeems Shares at the net asset value next determined after the Fund
has received your redemption request from the Transfer Agent in proper form.
Redemption requests can be executed only on Business Days. If your redemption
request is received by the Shareholder Servicing Agent on a non-Business Day,
the Transfer Agent will not communicate your redemption request to the Fund
until the next Business Day.
Redemption proceeds may be credited to an eligible BayBanks/Bank of Boston
deposit account, paid by check, or paid by wire, as you previously designated in
writing. The Fund ordinarily will make payment for Shares redeemed after proper
receipt from the Transfer Agent of the redemption request and of all documents
in proper form within one Business Day to an eligible BayBanks/Bank of Boston
deposit account, within five Business Days if you requested redemption proceeds
by check, or the same day by wire if the Fund receives your redemption request
from the Transfer Agent by 12:00 noon (Eastern time) on the day of redemption.
There is a fee for each wire and your bank may charge an additional fee to
receive the wire. Shares redeemed and wired the same day will not receive the
dividend declared on the day of redemption.
SIGNATURE GUARANTEES
If you request a redemption for an amount in excess of $25,000 (no limitation if
the proceeds are being credited to your BayBanks/Bank of Boston deposit
account), a redemption of any amount to be sent to an address other than your
address of record with the Fund, the transfer of the registration of Shares, or
a redemption of any amount payable to someone other than yourself as the
shareholder of record, your signature must be guaranteed on a written redemption
request by a trust company or insured commercial bank; an insured savings
association or savings bank; a member firm of a national or regional stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. At the Fund's discretion, signature guarantees
may also be required for other redemptions. The Transfer Agent has adopted
standards for accepting signature guarantees from the above institutions. The
Fund may elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Fund does
not accept signatures
guaranteed by a notary public. The Fund and the Transfer Agent reserve the right
to amend these standards at any time without notice. If you have a question
about the proper form for redemption requests, call 1-800-252-1784.
BY PHONE
You may redeem Shares by calling 1-800-252-1784.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-252-1784 to receive the necessary
form.
In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as by mail or by wire. See below. The Fund
uses reasonable procedures (including a shareholder identity test and sending a
written confirmation of each telephone transaction) to confirm that instructions
given by telephone are genuine. However, the Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.
BY MAIL
You may redeem Shares by submitting a written request for redemption to:
1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
Your written request must include your name and tax identification number, the
Fund's name, the dollar amount or number of Shares to be redeemed, and your
account number. Your request must be signed by the registered owner(s) exactly
as required by the account application.
BY WIRE
You may redeem Shares by wire by calling
1-800-252-1784. Redemption proceeds will be wired directly to the domestic
commercial bank and account you previously designated in writing. You are
charged a fee for each wire redemption and the fee is deducted from your
redemption proceeds.
The Fund reserves the right to wire redemption proceeds within seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect the Fund. The Fund also reserves the right to terminate or
modify the telephone and wire redemption procedures at any time. In that event,
shareholders would be promptly notified. Neither the Fund, the Transfer Agent,
the Sub-Transfer Agent, nor the Shareholder Servicing Agent will be responsible
for the authenticity of redemption instructions received by phone.
THROUGH BAYBANKS/BANK OF
BOSTON OFFICES
You may place an order to redeem Shares in person through designated
BayBanks/Bank of Boston offices.
Redemption orders received through designated BayBanks/Bank of Boston offices
typically would be received by the Transfer Agent within two Business Days. For
more prompt processing, you should consider another method, such as by phone as
described above.
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- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION YOU
SHOULD KNOW
MINIMUM BALANCE
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem your Shares and send you the proceeds if, due to shareholder redemptions
your account balance falls below a minimum value of $1,000. However, before
Shares are redeemed to close an account, the shareholder will be notified in
writing and given 60 days to purchase additional Shares to meet the minimum
balance requirement. The Fund reserves the right to amend this standard upon 60
days' prior written notice to shareholders. The Fund also reserves the right to
redeem Shares involuntarily or make payment for redemptions in the form of
securities if it appears appropriate to do so in light of the Fund's
responsibilities under the Investment Company Act of 1940.
CONFIRMATIONS AND STATEMENTS
Confirmations of each purchase, exchange or redemption are sent to each
shareholder. Monthly statements are sent to report transactions as well as
dividends paid during the month. The Fund may suspend or terminate its practice
of confirming each transaction at any time without notice.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the Fund's net investment income are declared daily to
shareholders of record immediately following the 1:00 p.m. (Eastern time)
pricing of Shares. Dividends are paid monthly within five Business Days after
the end of such calendar month. The Fund does not expect to realize any net
long-term capital gains. However, if any such gains are realized, they will be
distributed to shareholders at least annually.
You will receive your dividends and your distributions as an automatic
reinvestment in additional Shares at the net asset value next determined on the
payment dates.
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.
MASSACHUSETTS TAXES
Under existing Massachusetts laws, distributions made by the Fund will not be
subject to Massachusetts personal income taxes to the extent that such dividends
qualify as exempt interest dividends under the Internal Revenue Code, and
represent (i) interest or gain on obligations issued by the Commonwealth of
Massachusetts, its political subdivisions or agencies; or (ii) interest on
obligations of the United States, its territories or possessions to the extent
exempt from taxation by the states pursuant to federal law. Conversely, to the
extent that the distributions made by the Fund are derived from other types of
obligations, such dividends will be subject to Massachusetts personal income
taxes.
Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts excise
tax.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Massachusetts. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance, total return and yield of the Fund may be quoted and compared to
those of other mutual funds with similar investment objectives and to relevant
money market indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of the Fund may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
National financial publications in which performance and yield data are reported
may include The Wall Street Journal, The New York Times, Forbes, or Money
magazine. Publications of a local or regional nature, such as The Boston Globe
or The Boston Herald, may also be used in comparing the performance, total
return and yield of the Fund.
YIELD
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 the
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield but, when annualized, the income earned by an
investment 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.
TAX-EQUIVALENT YIELD
The tax-equivalent yield for the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 39.6% federal tax rate and the 12% regular
personal income tax rate imposed by Massachusetts and assuming that income
earned by the Fund is 100% tax-exempt on a regular federal, state, and local
basis.
For the seven day periods ended October 31, 1996, and November 30, 1996, the
tax-equivalent yields for 1784 Funds Shares were 6.16% and 6.16%, respectively
TOTAL RETURN
Total return represents the change, over a specified period of time, in the
value of an investment in the Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield, effective yield, tax-equivalent yield and total return will be calculated
separately for 1784 Funds Shares and Institutional Service Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
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 is an
attractive choice for investors, particularly in times of narrow spreads between
tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF MASSACHUSETTS
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
TAX
BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND
STATE 27.00% 40.00% 43.00% 48.00% 51.60%
<CAPTION>
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1- $ 40,101- $ 96,901- $ 147,701- Over
RETURN: 40,100 96,900 147,700 263,750 $ 263,750
SINGLE $1- $ 24,001- $ 58,151- $ 121,301- Over
RETURN: 24,000 58,150 121,300 263,750 $ 263,750
<CAPTION>
- ----------------------------------------------------------------------------
TAX- TAXABLE
EXEMPT YIELD
YIELD EQUIVALENT
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00 2.74 3.33 3.51 3.85 4.13
2.50 3.42 4.17 4.39 4.81 5.17
3.00 4.11 5.00 5.26 5.77 6.20
3.50 4.79 5.83 6.14 6.73 7.23
4.00 5.48 6.67 7.02 7.69 8.26
4.50 6.16 7.50 7.89 8.65 9.30
5.00 6.85 8.33 8.77 9.62 10.33
5.50 7.53 9.17 9.65 10.58 11.36
6.00 8.22 10.00 10.53 11.54 12.40
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart is for illustrative purposes only. It is not an indicator of past or
future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
MANAGEMENT, DISTRIBUTION AND ADMINISTRATION
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
this Fund, as of the date of this prospectus, the Board of Trustees ("Trustees")
has established two classes of shares, 1784 Funds Shares and Institutional
Service Shares. This prospectus relates only to 1784 Funds Shares of the Fund
which are designed primarily for individuals, partnerships and corporations who
seek a convenient means of accumulating an interest in a professionally managed
portfolio limited to short-term Massachusetts municipal securities. The Fund is
not likely to be a suitable investment for non-Massachusetts taxpayers or
retirement plans since it intends to invest primarily in Massachusetts municipal
securities.
VOTING RIGHTS
Each Share of the Trust owned by a shareholder gives that 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
shareholders of that portfolio or class are entitled to vote. As of December 2,
1996, John & Co., Burlington, Massachusetts, acting in various capacities for
numerous accounts, was the owner of record of 100% of the 1784 Funds shares of
the Fund, and therefore, may, for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of shareholders.
The Trust is not required to hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the Trust's or the Fund's
operation and for the election of Trustees under certain circumstances. Trustees
may be removed by the Trustees or by shareholders at a special meeting. A
special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust.
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the business affairs of the Trust and for exercising all of the powers
of the Trust except those reserved for the shareholders. An Executive Committee
handles the Trustees' responsibilities between meetings of the Trustees.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser subject to direction by the Trustees. The adviser continually
conducts investment research and supervision for the Fund and is responsible for
the purchase or sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to .50% of the
Fund's average daily net assets. The Adviser may voluntarily 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 $80 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, as of December 31, 1995,
Federated Investors is one of the largest mutual fund investment managers in the
United States.
Both the Fund 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 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 Trustees, and could result in severe
penalties.
DISTRIBUTION
Federated Securities Corp. is the principal distributor (the "Distributor") for
the Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICING ARRANGEMENTS
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 and not the Fund.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the administrative services.
ADMINISTRATION
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
SHAREHOLDER SERVICING AGENT
BayBank Systems, Inc., Waltham, Massachusetts, is the shareholder servicing
agent for 1784 Funds Shares. The Fund may pay the Shareholder Servicing Agent a
fee based on the average daily net asset value of Shares for which it provides
shareholder services. These shareholder services include, but are not limited
to, distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
Shares. This fee will be equal to .25% of the Fund's average daily net assets
for which the Shareholder Servicing Agent provides services; however, the
Shareholder Servicing Agent may choose voluntarily to waive all or a portion of
its fee at any time.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Investments in Institutional Service
Shares are subject to a minimum initial investment of $25,000. Institutional
Service Shares are sold at net asset value.
Instututional Service Shares and 1784 Funds Shares are subject to certain of the
same expenses. Institutional Service Shares are distributed with no 12b-1 fees
but are subject to shareholder services fees. Expense differences, however,
between Institutional Service Shares and 1784 Funds Shares may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-341-7400.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
MASSACHUSETTS MUNICIPAL CASH TRUST
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 32.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00$ 1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.03
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05)(0.03)
- ------------------------------------------------- --------- --------- --------- --------- --------- - -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------- --------- --------- --------- --------- --------- --------------
TOTAL RETURN (B) 3.07% 3.34% 2.14% 1.99% 2.87% 4.63% 2.59%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.55% 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%*
- -------------------------------------------------
Net investment income 3.02% 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%*
- -------------------------------------------------
Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $119,739 $99,628 $90,013 $84,524 $85,570 $81,681$63,483
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 18, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--99.3%
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--95.6%
--------------------------------------------------------------------------------------
$ 2,000,000 Attleboro, MA, 3.50% BANs, 2/6/1997 $ 2,000,513
--------------------------------------------------------------------------------------
2,000,000 Boston, MA Water & Sewer Commission, General Revenue Bonds
(1994 Series A) Weekly VRDNs (State Street Bank and Trust Co. LOC) 2,000,000
--------------------------------------------------------------------------------------
5,000,000 (b) Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) 5,000,000
--------------------------------------------------------------------------------------
3,465,000 (b) Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and
Trust Co. LIQ) 3,465,000
--------------------------------------------------------------------------------------
3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/ (Citibank NA, New York LIQ) 3,000,000
--------------------------------------------------------------------------------------
1,645,000 Commonwealth of Massachusetts, (Series B), 5.00% Bonds, 6/1/1997 1,656,134
--------------------------------------------------------------------------------------
3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) 3,200,000
--------------------------------------------------------------------------------------
2,500,000 Gardner, MA, 4.00% BANs, 4/1/1997 2,501,986
--------------------------------------------------------------------------------------
4,300,000 Hingham, MA, 3.75% BANs, 12/20/1996 4,300,671
--------------------------------------------------------------------------------------
3,925,000 Mashpee, MA, 4.00% BANs, 2/7/1997 3,929,061
--------------------------------------------------------------------------------------
8,200,000 Massachusetts Bay Transit Authority, (Series C), 3.55% CP (Westdeutsche Landesbank
Girozentrale LOC), Mandatory Tender
11/22/1996 8,200,000
--------------------------------------------------------------------------------------
700,000 Massachusetts HEFA Weekly VRDNs (Harvard University) 700,000
--------------------------------------------------------------------------------------
6,800,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank
Ltd, Osaka LOC) 6,800,000
--------------------------------------------------------------------------------------
2,200,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Endicott College)/ (Baybank, Burlington,
MA LOC) 2,200,000
--------------------------------------------------------------------------------------
3,320,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little
Wanderers)/(First National Bank of Boston, MA LOC) 3,320,000
--------------------------------------------------------------------------------------
2,600,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/ (Sanwa Bank Ltd, Osaka
LOC) 2,600,000
--------------------------------------------------------------------------------------
2,300,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) 2,300,000
--------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------------------------
$ 7,200,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) $ 7,200,000
--------------------------------------------------------------------------------------
5,500,000 Massachusetts HEFA, (Series G) Weekly VRDNs (Massachusetts Institute of Technology) 5,500,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts HEFA, 3.65% CP (Harvard University), Mandatory Tender 1/8/1997 5,000,000
--------------------------------------------------------------------------------------
500,000 Massachusetts IFA Weekly VRDNs (Berkshire, MA School)/(National Westminster Bank, PLC,
London LOC) 500,000
--------------------------------------------------------------------------------------
1,300,000 Massachusetts IFA Weekly VRDNs (Groton School)/(National Westminster Bank, PLC, London
LOC) 1,300,000
--------------------------------------------------------------------------------------
1,350,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/
(State Street Bank and Trust Co. LOC) 1,350,000
--------------------------------------------------------------------------------------
1,910,000 Massachusetts IFA, (1995 Series A) Weekly VRDNs (Bradford College Issue)/(First
National Bank of Boston, MA LOC) 1,910,000
--------------------------------------------------------------------------------------
300,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian
Imperial Bank of Commerce, Toronto LOC) 300,000
--------------------------------------------------------------------------------------
2,000,000 Massachusetts IFA, (Series 1992A) Weekly VRDNs (Ogden Haverhill)/ (Union Bank of
Switzerland, Zurich LOC) 2,000,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, (Series 1992B), 3.60% CP (New England Power Co.), Mandatory Tender
1/13/1997 5,000,000
--------------------------------------------------------------------------------------
3,000,000 Massachusetts IFA, (Series 1992B), 3.70% CP (New England Power Co.), Mandatory Tender
12/11/1996 3,000,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, (Series 1993A), 3.60% CP (New England Power Co.), Mandatory Tender
1/10/1997 5,000,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/
(Fleet Bank of New York LOC) 5,000,000
--------------------------------------------------------------------------------------
5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical
Research) 5,800,000
--------------------------------------------------------------------------------------
4,000,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury College)/ (Baybank, Burlington,
MA LOC) 4,000,000
--------------------------------------------------------------------------------------
1,525,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/ (Bank of Nova Scotia,
Toronto LOC) 1,525,000
--------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------------------------
$ 4,000,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(National
Westminster Bank, PLC, London LOC) $ 4,000,000
--------------------------------------------------------------------------------------
1,495,000 Massachusetts IFA, Museum Revenue Refunding Bonds (1996 Issue), 3.80% Bonds (Museum of
Fine Arts, Boston)/(MBIA INS), 1/1/1997 1,496,697
--------------------------------------------------------------------------------------
2,310,000 Massachusetts IFA, Refunding Revenue Bonds 1994 Project Daily VRDNs (Showa Womens
Institute Boston, Inc.)/(Bank of America NT and SA, San Francisco LOC) 2,310,000
--------------------------------------------------------------------------------------
6,255,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College
Issue)/(Baybank, Burlington, MA LOC) 6,255,000
--------------------------------------------------------------------------------------
5,000,000 Massachusetts IFA, Revenue Bonds (Series 1995C) Weekly VRDNs (Edgewood Retirement
Community Project)/(Dresdner Bank Ag, Frankfurt LOC) 5,000,000
--------------------------------------------------------------------------------------
1,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue Bonds
(1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 1,800,000
--------------------------------------------------------------------------------------
4,000,000 Massachusetts State HFA, (Series 50), 3.70% TOBs (Bayerische Landesbank Girozentrale
INV), Mandatory Tender 6/2/1997 4,000,000
--------------------------------------------------------------------------------------
2,500,000 Massachusetts Water Resources Authority, (Series 1994), 3.65% CP (Morgan Guaranty
Trust Co., New York LOC), Mandatory Tender
12/11/1996 2,500,000
--------------------------------------------------------------------------------------
2,000,000 Medway, MA, 4.50% BANs, 6/13/1997 2,008,980
--------------------------------------------------------------------------------------
757,140 Melrose, MA, 4.09% GANs, 4/8/1997 757,744
--------------------------------------------------------------------------------------
2,300,000 Melrose, MA, 4.25% BANs, 8/22/1997 2,304,472
--------------------------------------------------------------------------------------
3,080,000 Middleton, MA, 4.10% BANs, 9/5/1997 3,084,990
--------------------------------------------------------------------------------------
6,000,000 North Andover, MA, 4.00% BANs, 1/23/1997 6,003,004
--------------------------------------------------------------------------------------
3,773,100 North Andover, MA, 4.10% BANs, 9/11/1997 3,774,009
--------------------------------------------------------------------------------------
4,500,000 Springfield, MA , 4.50% BANs (Fleet National Bank, Providence,
R.I. LOC), 6/27/1997 4,514,094
--------------------------------------------------------------------------------------
1,725,000 Stoughton, MA, 3.51% BANs, 1/30/1997 1,725,244
--------------------------------------------------------------------------------------
2,514,160 Stoughton, MA, 3.75% BANs, 3/7/1997 2,517,093
--------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------------------------
MASSACHUSETTS--CONTINUED
--------------------------------------------------------------------------------------
$ 1,148,837 Yarmouth, MA, 3.40% RANs, 3/4/1997 $ 1,149,287
-------------------------------------------------------------------------------------- --------------
Total 166,758,979
-------------------------------------------------------------------------------------- --------------
PUERTO RICO--3.7%
--------------------------------------------------------------------------------------
5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 5,000,000
--------------------------------------------------------------------------------------
1,500,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance
Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque
Paribas, Paris LOC), Mandatory Tender 12/9/1996 1,500,000
-------------------------------------------------------------------------------------- --------------
Total 6,500,000
-------------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 173,258,979
-------------------------------------------------------------------------------------- --------------
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSRO's") or unrated securities of comparable quality. 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
97.2% 2.8%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $8,465,000 which represents 4.85% of net assets.
(c) Also represents cost for federal tax purposes.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($174,406,321) at
October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
CP--Commercial Paper
GANs--Grant Anticipation Notes
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IFA--Industrial Finance Authority
INS--Insured
INV--Investment Agreement
LIQ--Liquidity Agreement
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PLC--Public Limited Company
RANs--Revenue Anticipation Notes
SA--Support Agreement
TOBs--Tender Option Bonds
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 173,258,979
- ------------------------------------------------------------------------------------------------------
Cash 238,291
- ------------------------------------------------------------------------------------------------------
Income receivable 1,159,659
- ------------------------------------------------------------------------------------------------------
Receivable for shares sold 3,665
- ------------------------------------------------------------------------------------------------------ --------------
Total assets 174,660,594
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------
Payable for shares redeemed $ 5,151
- ------------------------------------------------------------------------------------------
Income distribution payable 184,990
- ------------------------------------------------------------------------------------------
Payable to transfer agent 23,413
- ------------------------------------------------------------------------------------------
Accrued expenses 40,719
- ------------------------------------------------------------------------------------------ ----------
Total liabilities 254,273
- ------------------------------------------------------------------------------------------------------ --------------
NET ASSETS for 174,406,321 shares outstanding $ 174,406,321
- ------------------------------------------------------------------------------------------------------ --------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------------------------------
$119,738,845 / 119,738,845 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------------ --------------
1784 FUNDS SHARES:
- ------------------------------------------------------------------------------------------------------
$54,667,476 / 54,667,476 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------------ --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $ 6,129,748
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 856,487
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 155,108
- ------------------------------------------------------------------------------------------
Custodian fees 26,446
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 60,024
- ------------------------------------------------------------------------------------------
Sub-transfer agent fees--1784 Funds Shares 13,090
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,603
- ------------------------------------------------------------------------------------------
Auditing fees 13,561
- ------------------------------------------------------------------------------------------
Legal fees 4,491
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 59,116
- ------------------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 299,707
- ------------------------------------------------------------------------------------------
Shareholder services fee--1784 Funds Shares 128,514
- ------------------------------------------------------------------------------------------
Share registration costs 42,821
- ------------------------------------------------------------------------------------------
Printing and postage 20,600
- ------------------------------------------------------------------------------------------
Insurance premiums 4,302
- ------------------------------------------------------------------------------------------
Miscellaneous 1,899
- ------------------------------------------------------------------------------------------ ------------
Total expenses 1,688,769
- ------------------------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $ (297,835)
- -----------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (299,707)
- -----------------------------------------------------------------------------
Waiver of shareholder services fee--1784 Funds Shares (128,514)
- ----------------------------------------------------------------------------- -----------
Total waivers (726,056)
- ------------------------------------------------------------------------------------------ ------------
Net expenses 962,713
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income $ 5,167,035
- -------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 5,167,035 $ 4,506,984
- ---------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------------
Institutional Service Shares (3,622,277) (3,066,535)
- ----------------------------------------------------------------------------------
1784 Funds Shares (1,544,758) (1,440,449)
- ---------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to
shareholders (5,167,035) (4,506,984)
- ---------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 533,103,977 371,068,422
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 2,757,964 2,255,146
- ----------------------------------------------------------------------------------
Cost of shares redeemed (507,663,326) (359,040,754)
- ---------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 28,198,615 14,282,814
- ---------------------------------------------------------------------------------- --------------- ---------------
Change in net assets 28,198,615 14,282,814
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 146,207,706 131,924,892
- ---------------------------------------------------------------------------------- --------------- ---------------
End of period $ 174,406,321 $ 146,207,706
- ---------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MASSACHUSETTS MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Corporation consists of sixteen portfolios. The
financial statements included herein are only those of Massachusetts Municipal
Cash Trust (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: Institutional Service Shares and 1784 Funds
Shares (formerly BayFunds Shares). The investment objective of the Fund is
current income exempt from federal regular income tax and Massachusetts state
income tax consistent with stability of principal.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
In some cases, the restricted securities may be resold without registration
upon exercise of a demand feature. Such restricted securities may be
determined to be liquid under criteria
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
established by the Board of Trustees (the "Trustees"). The Fund will not
incur any registration costs upon such resales. Restricted securities are
valued at amortized cost in accordance with Rule 2a-7 under the Act.
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Clipper, MA Tax Exempt Trust Weekly VRDNs 5/15/95 $ 5,000,000
Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly
VRDNs 6/30/95 $ 3,465,000
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
1996 1995
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------------------------------
Shares sold 489,456,450 337,436,671
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,214,590 814,368
- ----------------------------------------------------------------------------------
Shares redeemed (470,559,983) (328,636,637)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from
Institutional Service Share transactions 20,111,057 9,614,402
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
1996 1995
1784 FUNDS SHARES
- ----------------------------------------------------------------------------------
Shares sold 43,647,527 33,631,751
- ----------------------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,543,374 1,440,778
- ----------------------------------------------------------------------------------
Shares redeemed (37,103,343) (30,404,117)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from
1784 Funds Share transactions 8,087,558 4,668,412
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions 28,198,615 14,282,814
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
At October 31, 1996, capital paid-in aggregated $174,406,321.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to .50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Institutional Service
Shares for the period. Under the terms of a Shareholder Services Agreement
with BayBank Systems, Inc., the Fund will pay BayBank Systems, Inc., up to
.25% of average daily net assets of 1784 Funds Shares for the period. These
fees are used to finance certain services for shareholders and to maintain
shareholder accounts. FSS and BayBank Systems, Inc. may voluntarily choose
to waive any portion of their fees. FSS and BayBank Systems, Inc. can
modify or terminate these voluntary waivers at any time at their sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
MASSACHUSETTS MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $198,450,000 and $196,600,000, respectively.
GENERAL--Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 45.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 7.2% of total investments.
(6) SUBSEQUENT EVENT
Effective November 25, 1996, BayFunds Shares were renamed 1784 Funds Shares.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Massachusetts Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1996, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2 and 19 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADDRESSES
Massachusetts Municipal Cash Trust
1784 Funds Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
SUB-TRANSFER AGENT
Boston Financial Data Services, Inc.
Two Heritage Drive
Quincy, Massachusetts 02171
SHAREHOLDER SERVICING AGENT
BayBank Systems, Inc.
One BayBank Technology Place
Waltham, Massachusetts 02154
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1119
Boston, Massachusetts 02266
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, Pennsylvania 15222
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
1784 FUNDS SHARES
(FORMERLY, BAYFUNDS SHARES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for 1784 Funds Shares of Massachusetts Municipal Cash Trust
(the "Fund"), a portfolio of Federated Municipal Trust (the ``Trust')
dated December 31, 1996. This Statement is not a prospectus. You may
request a copy of a prospectus or a paper copy of this Statement, if
you have received it electronically, free of charge by calling
1-800-252-1784.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated December 31, 1996
[logo]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229832
0032603B (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investment Limitations 2
Regulatory Compliance 4
Massachusetts Investment Risks 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 9
Trustees' Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
Adviser to the Fund 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian 12
Transfer Agent 12
Sub-Transfer Agent 12
Independent Public Accountants 12
SHAREHOLDER SERVICING AGENT 12
Exchanging Securities for Shares 12
DETERMINING NET ASSET VALUE 12
Redemption in Kind 13
MASSACHUSETTS PARTNERSHIP LAW 13
The Fund's Tax Status 13
Massachusetts State Income Tax 13
PERFORMANCE INFORMATION 14
Yield 14
Effective Yield 14
Total Return 14
Performance Comparisons 15
Economic and Market Information 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 16
Institutional Clients 16
Trust Organizations 16
Broker/Dealers and Bank Broker/Dealers
Subsidiaries 16
APPENDIX 17
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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 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.
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"), or MIG-1 or MIG-2 by Moody's Investors Service, Inc.
("Moody's'), or F-1+, F-1 and F-2 by Fitch Investor Services, Inc.
(`Fitch'') are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated
as being in one of the two highest short-term rating categories; currently,
such securities must be rated by two NRSROs in one of their two highest
categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund in a dollar amount sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date; marked to
market daily and 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. The Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy, pursuant to guidelines
established by the Trustees.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as are necessary for
the clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money in amounts up to one-third of the value of its total
assets, including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as
a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of the value 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued Massachusetts Municipal Securities or
temporary investments or enter into repurchase agreements, in
accordance with its investment objective, policies, and limitations or
Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN 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.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be
invested in any one industry, or in industrial development bonds or
other securities the interest upon which is paid from revenues of
similar types of projects. However, the Fund may invest as temporary
investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of
its total assets are to be invested in the securities of a single
issuer, and no more than 25% of its total assets are to be invested in
the securities of a single issuer at the close of each quarter of each
fiscal year.
Under this limitation, each governmental subdivision, including
states, territories, possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalitites, or
similar entities will be considered a separate issuer if its assets
and revenues are separate from those of the governmental body creating
it and the security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of
a non-governmental 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.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them.
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.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present
intent to do so during the coming fiscal year.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. 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.
MASSACHUSETTS INVESTMENT RISKS
The Fund invests in obligations of Massachusetts issuers which results in
the Fund's performance being subject to risks associated with the overall
economic conditions present within Massachusetts (the "Commonwealth"). The
following information is a brief summary of the recent prevailing economic
conditions and a general summary of the Commonwealth's financial status.
This information is based on official statements relating to securities
that have been offered by Massachusetts issuers and from other sources
believed to be reliable but should not be relied upon as a complete
description of all relevant information.
The Commonwealth has a diverse economy with manufacturing, education,
health care, computers and financial services all being significant
contributors. Massachusetts is generally considered the leader in research
and development within the biotechnology, software and robotics industries
as well as having many highly prestigious universities. In addition to a
highly skilled and educated workforce, the Commonwealth has one of the
higher average per capita incomes in this country.
Beginning in the late 1980's, economic growth in the New England region and
Massachusetts, in particular, slowed and showed pronounced deterioration in
the construction, real estate, financial and manufacturing sectors. Between
1988 and 1992, there were extensive job losses that resulted in a 10%
reduction in the work force. Also, over the same period, property values in
the region experienced a similar decline. More recently, the Massachusetts
economy has experienced a slight recovery, however, at a slower pace than
the nation and there are signs that this recovery may be slowing. In
addition, after years of above average property value growth, property
values have decreased an estimated 6% over the same period.
The two major revenue sources available to cities and towns in
Massachusetts are local property taxes and local aid from the Commonwealth.
Property taxes are subject to limitations imposed by a state-wide
initiative approved by the voters in November, 1980 (commonly known as
Proposition 2-1/2), which limits the property taxes that may be levied by
any city or town in any fiscal year to the lesser of (i) 2.5% of the full
valuation of the real estate and personal property therein or (ii) 2.5%
over the previous year's levy limit plus any growth in the tax base from
new construction. In recent years the decrease in property values due to
the recession and the limitations of tax levy growth imposed by Proposition
2-1/2 have resulted in budget constraints for many cities and towns.
The overall financial condition of the Commonwealth can also be illustrated
by the changes of its debt ratings. During the period in which the
Commonwealth has experienced its financial difficulties beginning in 1988,
its general obligation long-term debt ratings as determined by Moody's and
S & P's decreased from Aa and AA+ to Baa and BBB respectively. Since then
the Commonwealth has had its debt ratings raised by the two rating agencies
to A1 and A+ by Moody's and S&P, respectively, reflecting improved fiscal
performance.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which
is diversified across numerous states and municipal entities. The ability
of the Commonwealth or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the Commonwealth; and the underlying
fiscal condition of the Commonwealth and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding 1784 Funds Shares of Massachusetts Municipal Cash
Trust:John & Co., Burlington, Massachusetts, acting in various capacities
for numerous accounts, owned approximately 53,216,829 shares (100%). As of
the same date, the following shareholders of record owned 5% or more of the
oustanding Institutional Service Shares of the Fund: State Street Bank and
Trust Company, acting in various capacities for numerous accounts, owned
approximately 55,042,437 shares (38.98%); and John & Co. owned
approximately 17,474,106 shares (12.37%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "Adviser"). It
is a subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder
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, the Adviser receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1996, 1995, and 1994, the Adviser earned $856,487, $686,918,
and $643,293, respectively, of which $297,835, $276,299, and $445,711,
respectively, were voluntarily waived because of undertakings to limit the
Fund's expenses.
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 year ended October 31, 1996, 1995,
and 1994, the Trust 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal year ended October 31, 1996,
1995, and 1994, the Administrators earned $155,108, $155,000, and $195,483,
respectively.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, and number of accounts and transactions made by shareholders.
SUB-TRANSFER AGENT
Boston Financial Data Services, Inc., Quincy, Massachusetts, is the sub-
transfer agent for the 1784 Funds Shares of the Fund. The Institutional
Service Shares class has no sub-transfer agent.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
SHAREHOLDER SERVICING AGENT
Under a Shareholder Servicing Plan, the Fund may pay a fee to BayBank
Systems, Inc., as shareholder servicing agent, for services provided which
are necessary for the maintenance of shareholder accounts. These
activities and services may include, but are not limited to: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balance; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
For the fiscal year ended October 31, 1996, the Fund paid no shareholder
services fees on behalf of the 1784 Funds Shares.
EXCHANGING SECURITIES FOR SHARES
The Fund may accept securities in exchange for Shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value. The Fund
acquires the exchanged securities for investment and not for resale. The
market value of any securities exchanged in an initial investment plus any
cash, must be at least $25,000.
Securities accepted by the Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend upon the net
asset value of Shares on the day the securities are valued. One Share of
the Fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the property
of the Fund, along with the securities.
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 .50% 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.
MONTHLY STATEMENTS
Shareholders of the Fund who have eligible BayBanks/Bank of Boston
deposit accounts will receive combined monthly statements containing
all information relating to their deposit account(s) and 1784 Funds
transactions.
COMPANION ACCOUNT AVAILABILITY
Certain BayBanks/Bank of Boston deposit account customers may elect to
open a companion 1784 Funds account to facilitate 1784 Funds
transactions.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument that the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required 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.
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.
MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Fund who are subject to Massachusetts income
taxation will not be required to pay Massachusetts income tax on that
portion of their dividends which are attributable to: interest earned on
Massachusetts tax-free municipal obligations; gain from the sale of certain
of such obligations; and interest earned on obligations of United States
territories or possessions, to the extent interest on such obligations is
exempt from taxation by the state pursuant to federal law. All remaining
dividends will be subject to Massachusetts income tax.
If a shareholder of the Fund is a Massachusetts business corporation or any
foreign business corporation which exercises its charter, qualifies to do
business, actually does business or owns or uses any part of its capital,
plant or other property in Massachusetts, then it will be subject to
Massachusetts excise taxation either as a tangible property corporation or
as an intangible property corporation. If the corporate shareholder is a
tangible property corporation, it will be taxed upon its net income
allocated to Massachusetts and the value of certain tangible property. If
it is an intangible property corporation, it will be taxed upon its net
income and net worth allocated to Massachusetts. Net income is gross income
less allowable deductions for federal income tax purposes, subject to
specified modifications.
Dividends received from the Fund are includable in gross income and
generally may not be deducted by a corporate shareholder in computing its
net income. The corporation's shares in the Fund are not includable in the
computation of the tangible property base of a tangible property
corporation, but are includable in the computation of the net worth base of
an intangible property corporation.
Shares of Massachusetts Municipal Cash Trust will be exempt from local
property taxes in Massachusetts.
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 Fund calculates its yield based upon the seven days ending on the day
of the calculation, called the `base period.'' This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and 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.
The yield for the seven-day period ended October 31, 1996 for the 1784
Funds Shares of the Fund was 2.98%.
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.
The effective yield for the seven-day period ended October 31, 1996 for the
1784 Funds Shares of the Fund was 3.02%.
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.
For the one-year period ended October 31, 1996, and for the period from
March 8, 1993 (date of initial public investment) to October 31, 1996, the
average annual total returns were 3.05% and 2.62%, respectively, for the
1784 Funds Shares of the Fund.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
From time to time as it deems appropriate, the Fund may advertise the
performance of its shares using charts, graphs and description, compared to
federally insured bank products, including certificates of deposit and time
deposits, and to money market funds using the Lipper Analytical Services
money market instruments average. Unlike federally insured bank products,
the shares of the Fund are not insured.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
MICHIGAN MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Michigan Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Michigan municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Michigan, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and the personal income taxes
imposed by the state of Michigan consistent with stability of principal and
liquidity. In addition, the Fund intends to qualify as an investment
substantially exempt from the Michigan intangibles tax.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Michigan Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
HOW TO REDEEM SHARES 10
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 11
Federal Income Tax 11
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 26
ADDRESSES 27
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.37%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.37%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of
the management fee. The advisor can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.26% absent the voluntary
waivers of the management fee and the shareholder services fee and the
voluntary reimbursement of certain other operating expenses.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period $4 $12 $21 $47
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MICHIGAN MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page
26.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(b) 2.19%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37%*
Net investment income 3.40%*
Expense waiver/reimbursement(c) 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $11,614
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 2, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Shares and Institutional Service Shares. This
prospectus relates only to Institutional Shares of the Fund, which are
designed primarily for financial institutions acting in an agency or
fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Michigan municipal
securities. The Fund may not be a suitable investment for retirement plans
or for non-Michigan taxpayers because it invests in municipal securities of
that state. A minimum initial investment of $25,000 over 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
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 state of
Michigan consistent with stability of principal and liquidity. 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 complying with the various requirements of Rule
2a-7 under the Investment Company Act of 1940 which regulates money market
mutual funds and by following the investment policies described in this
prospectus. In addition, the Fund intends to qualify as an investment
substantially exempt from the Michigan Intangibles Personal Property Tax
("intangibles tax").
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
Michigan municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days 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 Michigan state income and intangibles tax. (Federal regular
income tax does not include the federal individual alternative minimum tax
or the federal alternative minimum tax for corporations.) Unless indicated
otherwise, the investment policies may be changed by the Board of 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 Michigan 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 Michigan personal income tax ("Michigan
Municipal Securities"). Examples of Michigan Municipal Securities include,
but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Michigan
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Michigan 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Michigan Municipal Securities is subject to the federal alternative minimum
tax.
MICHIGAN MUNICIPAL SECURITIES
Michigan 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.
Michigan 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 Michigan 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 Michigan 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 Michigan 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 Michigan Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in Michigan 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 Michigan 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 Michigan 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. Due to these risk
considerations, the Fund's concentration in Michigan Municipal Securities
may entail a greater level of risk than other types of money market funds.
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 assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. Also, the adviser may
voluntarily choose to waive a portion of its fee or reimburse other expenses
of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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 .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund 's investment adviser or
its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting 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 p.m., 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Michigan Municipal Cash Trust -- Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Michigan Municipal Cash
Trust -- Institutional Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next
day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 p.m. (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
ACCOUNT AND SHARE INFORMATION
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 3:00 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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 2, 1996, First Mar & Company owned 71.16% of the
Institutional Shares of the Fund and McDonald & Company Securities, Inc.
owned 37.98% of the Institutional Service Shares of the Fund. These
companies may, for certain purposes, be deemed to control the shares of the
Fund and be able to affect the outcome of certain matters presented for a
vote of shareholders.
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, within the limits of its investment
policies, 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
Michigan. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
MICHIGAN TAXES. Under existing Michigan laws, distributions made by the Fund
will not be subject to Michigan personal income taxes to the extent that
such distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest from obligations of Michigan or any
of its political subdivisions, or (ii) income from obligations of the United
States government which are exempted from state income taxation by a law of
the United States.
The portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions, or (ii)
obligations of the United States which are exempt from taxation by a law of
the United States, and dividends paid by the Fund representing interest
payments on securities, will be exempt from Michigan intangibles tax. 1995
Public Act 5 repeals the intangibles tax effective January 1, 1998.
Distributions by the Fund are not subject to the Michigan Single Business
Tax to the extent that such distributions are derived from interest on
obligations of Michigan or its political subdivisions, or obligations of the
United States government that are exempt from state taxation by a law of the
United States.
Certain municipalities in Michigan also impose an income tax on individuals
and corporations. However, to the extent that the dividends from the Funds
are exempt from federal regular income taxes, such dividends also will be
exempt from Michigan municipal income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily
to financial institutions and are subject to a minimum initial investment of
$10,000 within a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan, but are
subject to shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
MICHIGAN MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
26.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(b) 3.26% 1.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.50% 0.32%*
Net investment income 3.21% 3.67%*
Expense waiver/reimbursement(c) 0.76% 1.63%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $92,275 $30,133
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 20, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 100.2%
MICHIGAN -- 94.5%
$ 1,000,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue
Bonds (Series 1995) Weekly VRDNs (Suburban Tool, Inc.)/
(Huntington National Bank, Columbus, OH LOC) $ 1,000,000
4,209,000 Battle Creek, MI Economic Development Corporation, Ltd. Obligation
Economic Development Revenue Refunding Bonds (Series 1992)
Weekly VRDNs (Michigan Carton & Paperboard Company)/
(American National Bank, Chicago LOC) 4,209,000
1,580,000 Bedford Township, MI Economic Development Corp., EDRB (Series
1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank, N.A. LOC) 1,580,000
1,825,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate
Tender Securities (Series 1988B), 3.65% TOBs (Sisters of Charity Health
Care System)/(MBIA INS)/(Morgan Guaranty Trust Co., New York
LIQ), Optional Tender 11/1/1996 1,825,000
750,000 Dearborn, MI Economic Development Corp., (Series 1990) Weekly
VRDNs (Exhibit Productions, Inc. Project)/(First of America Bank -
Illinois LOC) 750,000
2,360,000 Delta County, MI Economic Development Corp., Environmental
Improvement Revenue Refunding Bonds (Series 1985 B), 3.60% CP
(Mead-Escanaba Paper Co. Project)/(Union Bank of Switzerland,
Zurich LOC), Mandatory Tender 1/14/1997 2,360,000
800,000 Detroit, MI Water Supply System, Water Supply System Revenue and
Revenue Refunding Bonds (Series 1993) Weekly VRDNs (FGIC INS)/
(FGIC Securities Purchase, Inc. LIQ) 800,000
2,300,000 Eaton Rapids, MI Public Schools, 4.20% RANs, 4/1/1997 2,301,844
2,500,000 Fenton Area Public Schools, MI, LT GO State Aid Notes, 4.15% TANs,
5/1/1997 2,502,416
2,000,000 Garden City, MI HFA, Hospital Revenue Bonds (Series 1996A) Weekly
VRDNs (Garden City Hospital, Osteopathic)/(First of America Bank -
Michigan LOC) 2,000,000
3,500,000 Garden City, MI School District, State Aid Notes, 4.30% RANs (NBD
Bank, Michigan LOC), 4/15/1997 3,507,622
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
MICHIGAN -- CONTINUED
$ 2,800,000 Michigan Higher Education Student Loan Authority, Refunding
Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC INS)/
(Kredietbank N.V., Brussels LIQ) $ 2,800,000
3,100,000 Michigan Job Development Authority, Limited Obligation Revenue
Bonds Weekly VRDNs (Andersons Project)/(Morgan Guaranty Trust
LOC) 3,100,000
3,000,000 Michigan State Building Authority, (Series 1), 3.65% CP (Canadian
Imperial Bank of Commerce, Toronto LOC), Mandatory Tender
12/12/1996 3,000,000
310,000 Michigan State Hospital Finance Authority, (Series 1994) Weekly
VRDNs (Mt. Clemens General Hospital)/(Comerica Bank, Detroit,
MI LOC) 310,000
2,700,000 Michigan State Hospital Finance Authority, (Series A) Weekly VRDNs
(OSF Health Care Systems) 2,700,000
2,000,000 Michigan State Hospital Finance Authority, Hospital Equipment
Loan Program Bonds (Series A) Weekly VRDNs (First of America
Bank - Michigan LOC) 2,000,000
2,000,000 Michigan State Housing Development Authority, (Series 1990 B)
CR-71, 3.70% TOBs, (Citibank N.A., New York LIQ) Optional
Tender 12/1/1996 2,000,000
4,870,000 Michigan State Housing Development Authority, Revenue Bonds
(Series A), 3.60% CP (Credit Suisse, Zurich LOC), Mandatory Tender
11/21/1996 4,870,000
1,500,000 Michigan State Trunk Line, Refunding Bonds (Series B), 4.00% Bonds
(FGIC INS), 11/15/1996 1,500,138
1,445,000 Michigan State, Recreation Program (Series 1992), 4.85% Bonds,
11/1/1996 1,445,000
2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank
of Tokyo-Mitsubishi Ltd. LOC) 2,000,000
4,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex
Controls Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000
5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA Gas,
Inc.)/(Svenska Handelsbanken, Stockholm LOC) 5,620,000
900,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood
Industries, Inc. Project)/(NBD Bank, Michigan LOC) 900,000
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
MICHIGAN -- CONTINUED
$ 1,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation
Revenue and Revenue Refunding Bonds (Series 1996) Weekly VRDNs
(C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC) $ 1,500,000
6,000,000 Michigan Strategic Fund, Limited Obligation PCR (Series 1993)
Weekly VRDNs (Allied-Signal, Inc.) 6,000,000
995,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Rowe Thomas Company Project)/(Comerica
Bank, Detroit, MI LOC) 995,000
1,100,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1991) Weekly VRDNs (Martin Luther Memorial Home, Inc.)/(National
Australia Bank, Ltd., Melbourne LOC) 1,100,000
3,860,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Bear Lake Associates Project)/(Old Kent Bank
& Trust Co., Grand Rapids LOC) 3,860,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Hercules Drawn Steel Corporation Project)/
(KeyBank, N.A. LOC) 1,000,000
2,870,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (J.R. Automation Technologies Project)/(Old
Kent Bank & Trust Co., Grand Rapids LOC) 2,870,000
1,020,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (RSR Project)/(Old Kent Bank & Trust Co.,
Grand Rapids LOC) 1,020,000
3,800,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc. Project)/
(Comerica Bank, Detroit, MI LOC) 3,800,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (ACI Properties, L.L.C. Project)/(Comerica
Bank, Detroit, MI LOC) 1,000,000
2,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (AVL North America, Inc. Project)/(NBD Bank,
Michigan LOC) 2,000,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank, Detroit, MI LOC) 1,000,000
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
MICHIGAN -- CONTINUED
$ 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Echo Properties, L.L.C. Project)/(Comerica
Bank, Detroit, MI LOC) $ 1,000,000
2,700,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (G & T Real Estate Investments Co., L.L.C.)/
(NBD Bank, Michigan LOC) 2,700,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/(Comerica Bank,
Detroit, MI LOC) 1,000,000
3,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds Weekly
VRDNs (Hess Industries, Inc.)/(Norwest Bank Minnesota,
Minneapolis LOC) 3,300,000
1,900,000 Wayne County, MI, Airport Revenue Refunding Bonds (Series 1996A)
Weekly VRDNs (Detroit Metropolitan Wayne County Airport)/
(Bayerische Landesbank Girozentrale LOC) 1,900,000
3,000,000 Woodhaven, MI School District, State Aid Notes, 4.125% TRANs,
4/30/1997 3,003,194
Total 98,129,214
PUERTO RICO -- 3.8%
4,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 2/14/1997 4,000,000
VIRGIN ISLANDS -- 1.9%
2,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding
Bonds (1995 Series B), 3.50% TOBs (Trinity Funding Company INV),
Mandatory Tender 11/1/1996 2,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $104,129,214
</TABLE>
Securities that are subject to the alternative minimum tax represent 53.3%
of the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($103,889,129) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
CP -- Commercial Paper
EDC -- Economic Development Commission
EDRB -- Economic Development Revenue Bond
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
HFA -- Housing Finance Authority
INS -- Insured
INV -- Investment Agreement
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
RANs -- Revenue Anticipation Notes
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
Statement of Assets and Liabilities
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 104,129,214
Income receivable 615,979
Receivable for shares sold 92
Deferred expenses 6,160
Total assets 104,751,445
LIABILITIES:
Income distribution payable $ 59,587
Payable to Bank 759,097
Accrued expenses 43,632
Total liabilities 862,316
Net Assets for 103,889,129 shares outstanding $ 103,889,129
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$92,275,457 / 92,275,457 shares outstanding $1.00
INSTITUTIONAL SHARES:
$11,613,672 / 11,613,672 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,505,244
EXPENSES:
Investment advisory fee $ 337,325
Administrative personnel and services fee 145,082
Custodian fees 19,809
Transfer and dividend disbursing agent fees and expenses 48,098
Directors'/Trustees' fees 1,352
Auditing fees 8,396
Legal fees 3,893
Portfolio accounting fees 49,950
Shareholder services fee -- Institutional Service Shares 152,832
Shareholder services fee -- Institutional Shares 15,830
Share registration costs 46,293
Printing and postage 14,277
Insurance premiums 6,540
Miscellaneous 2,435
Total expenses 852,112
Waivers and reimbursements --
Waiver of investment advisory fee $ (337,325)
Waiver of shareholder services fee --
Institutional Service Shares (73,359)
Waiver of shareholder services fee --
Institutional Shares (15,830)
Reimbursement of other operating expenses (94,212)
Total waivers and reimbursements (520,726)
Net expenses 331,386
Net investment income $ 2,173,858
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1996 1995(a)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,173,858 $ 235,600
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Service Shares (1,958,685) (235,600)
Institutional Shares (215,173) --
Change in net assets resulting from distributions to shareholders (2,173,858) (235,600)
SHARE TRANSACTIONS --
Proceeds from sale of shares 318,706,288 41,468,554
Net asset value of shares issued to shareholders in payment
of distributions declared 1,590,062 229,562
Cost of shares redeemed (246,540,494) (11,564,843)
Change in net assets resulting from share transactions 73,755,856 30,133,273
Change in net assets 73,755,856 30,133,273
NET ASSETS:
Beginning of period 30,133,273 --
End of period $ 103,889,129 $ 30,133,273
</TABLE>
(a) For the period from June 20, 1995 (date of initial public investment) to
October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Michigan Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund
offers two classes of shares: Institutional Service Shares and Institutional
Shares. The investment objective of the Fund is current income exempt from
federal regular income tax and the personal income tax imposed by the State
of Michigan consistent with the stability of principal and liquidity.
Effective March 2, 1996 the Fund added Institutional Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$103,889,129.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1996 1995(a)
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 286,548,847 41,468,554
Shares issued to shareholders in payment of distributions declared 1,585,481 229,562
Shares redeemed (225,992,144) (11,564,843)
Net change resulting from Institutional Service Shares transactions 62,142,184 30,133,273
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(b) 1995
INSTITUTIONAL SHARES SHARES SHARES
<S> <C> <C>
Shares sold 32,157,441 --
Shares issued to shareholders in payment of distributions 4,581 --
declared
Shares redeemed (20,548,350) --
Net change resulting from Institutional Shares transactions 11,613,672 --
Net change resulting from Fund share transactions 73,755,856 30,133,273
</TABLE>
(a) For the period from June 20, 1995 (date of initial public investment) to
October 31, 1995.
(b) For the period from March 2, 1996 (date of initial public investment) to
October 31, 1996.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expense of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimburse at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $18,618 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $1,655 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $155,639,000 and $143,539,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 75.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 8.7% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(MICHIGAN MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Michigan Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1996, the related statement of
operations for the year then ended and the statement of changes in net
assets and the financial highlights (see pages 2 and 14 of the prospectus)
for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Michigan Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
Michigan 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
MICHIGAN MUNICIPAL
CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229667
G01212-04-IS (12/96)
MICHIGAN MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Michigan Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Michigan
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Michigan, or its political subdivisions and financing authorities, but which
provide current income exempt from federal regular income tax and the
personal income taxes imposed by the state of Michigan consistent with
stability of principal and liquidity. In addition, the Fund intends to
qualify as an investment substantially exempt from the Michigan intangibles
tax.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Michigan Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional
Service Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 13
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 14
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 15
FINANCIAL STATEMENTS 16
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 27
ADDRESSES 28
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.50%
Shareholder Services Fee (after waiver)(2) 0.13%
Total Operating Expenses(3) 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of
the management fee. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.26% absent the voluntary
waiver of the management fee, the voluntary waiver of a portion of the
shareholder services fee and the voluntary reimbursement of certain other
operating expenses.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service
Shares of the Trust will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Fund
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period $5 $16 $28 $63
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MICHIGAN MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page
26.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.26% 1.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.50% 0.32%*
Net investment income 3.21% 3.67%*
Expense waiver/reimbursement(c) 0.76% 1.63%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $92,275 $30,133
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 20, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Service Shares of the Fund, which
are designed primarily for financial institutions acting in an agency or
fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Michigan municipal
securities. The Fund may not be a suitable investment for retirement plans
or for non-Michigan taxpayers because it invests in municipal securities of
that state. A minimum initial investment of $10,000 over 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
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 state of
Michigan consistent with stability of principal and liquidity. 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 complying with the various requirements of Rule
2a-7 under the Investment Company Act of 1940 which regulates money market
mutual funds and by following the investment policies described in this
prospectus. In addition, the Fund intends to qualify as an investment
substantially exempt from the Michigan Intangibles Personal Property Tax
("intangibles tax").
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
Michigan municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days 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 Michigan state income and intangibles tax. (Federal regular
income tax does not include the federal individual alternative minimum tax
or the federal alternative minimum tax for corporations.) Unless indicated
otherwise, the investment policies may be changed by the Board of 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 Michigan 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 Michigan personal income tax ("Michigan
Municipal Securities"). Examples of Michigan Municipal Securities include,
but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Michigan
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Michigan 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Michigan Municipal Securities is subject to the federal alternative minimum
tax.
MICHIGAN MUNICIPAL SECURITIES
Michigan 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.
Michigan 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 Michigan 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 Michigan 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 Michigan 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 Michigan Municipal Securities acceptable for purchase by
the Fund could become limited.
The Fund may invest in Michigan 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 Michigan 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 Michigan 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. Due to these risk
considerations, the Fund's concentration in Michigan Municipal Securities
may entail a greater level of risk than other types of money market funds.
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 assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. Also, the adviser may
voluntarily choose to waive a portion of its fee or reimburse other expenses
of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Fund. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Fund 's investment adviser or
its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Institutional Service Shares from the value of Fund assets attributable
to Institutional Service Shares, and dividing the remainder by the number of
Institutional Service 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 p.m., 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $10,000 or more within a 90-day period and additional
investments of as little as $500. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the
Fund before 1:00 p.m. (Eastern time). The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) in order to begin earning dividends that same day. Federal
funds should be wired as follows: Federated Shareholder Services Company,
c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE;
For Credit to: Michigan Municipal Cash Trust -- Institutional Service
Shares; Fund Number (This number can be found on the account statement or by
contacting the Fund.); Group Number or Order Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on
holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the
telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Michigan Municipal Cash
Trust -- Institutional Service Shares. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received), and shares begin earning
dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should
contact their financial institution or the Fund to participate in this
program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Shareholder Services
Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time) 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, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement. Under limited circumstances, arrangements
may be made with the distributor for same-day payment of proceeds, without
that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through
ACH will not be wired until that method of payment has cleared.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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 3:00 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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $10,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of December 2, 1996, McDonald & Company Securities, Inc. owned 37.98% of
the Institutional Service Shares of the Fund and First Mar & Company owned
71.16% of the Institutional Shares of the Fund. These companies may, for
certain purposes, be deemed to control the shares of the Fund and be able to
affect the outcome of certain matters presented for a vote of shareholders.
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, within the limits of its investment
policies, 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
Michigan. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
MICHIGAN TAXES. Under existing Michigan laws, distributions made by the Fund
will not be subject to Michigan personal income taxes to the extent that
such distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest from obligations of Michigan or any
of its political subdivisions, or (ii) income from obligations of the United
States government which are exempted from state income taxation by a law of
the United States.
The portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions, or (ii)
obligations of the United States which are exempt from taxation by a law of
the United States, and dividends paid by the Fund representing interest
payments on securities, will be exempt from Michigan intangibles tax. 1995
Public Act 5 repeals the intangibles tax effective January 1, 1998.
Distributions by the Fund are not subject to the Michigan Single Business
Tax to the extent that such distributions are derived from interest on
obligations of Michigan or its political subdivisions, or obligations of the
United States government that are exempt from state taxation by a law of the
United States.
Certain municipalities in Michigan also impose an income tax on individuals
and corporations. However, to the extent that the dividends from the Funds
are exempt from federal regular income taxes, such dividends also will be
exempt from Michigan municipal income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions and are subject to a minimum initial investment of $25,000
within a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan, but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
MICHIGAN MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants on page
26.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(b) 2.19%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37%*
Net investment income 3.40%*
Expense waiver/reimbursement(c) 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $11,614
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 2, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 100.2%
MICHIGAN -- 94.5%
$ 1,000,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue
Bonds (Series 1995) Weekly VRDNs (Suburban Tool, Inc.)/
(Huntington National Bank, Columbus, OH LOC) $ 1,000,000
4,209,000 Battle Creek, MI Economic Development Corporation, Ltd. Obligation
Economic Development Revenue Refunding Bonds (Series 1992)
Weekly VRDNs (Michigan Carton & Paperboard Company)/
(American National Bank, Chicago LOC) 4,209,000
1,580,000 Bedford Township, MI Economic Development Corp., EDRB (Series
1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank, N.A. LOC) 1,580,000
1,825,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate
Tender Securities (Series 1988B), 3.65% TOBs (Sisters of Charity Health
Care System)/(MBIA INS)/(Morgan Guaranty Trust Co., New York
LIQ), Optional Tender 11/1/1996 1,825,000
750,000 Dearborn, MI Economic Development Corp., (Series 1990) Weekly
VRDNs (Exhibit Productions, Inc. Project)/(First of America Bank -
Illinois LOC) 750,000
2,360,000 Delta County, MI Economic Development Corp., Environmental
Improvement Revenue Refunding Bonds (Series 1985 B), 3.60% CP
(Mead-Escanaba Paper Co. Project)/(Union Bank of Switzerland,
Zurich LOC), Mandatory Tender 1/14/1997 2,360,000
800,000 Detroit, MI Water Supply System, Water Supply System Revenue and
Revenue Refunding Bonds (Series 1993) Weekly VRDNs (FGIC INS)/
(FGIC Securities Purchase, Inc. LIQ) 800,000
2,300,000 Eaton Rapids, MI Public Schools, 4.20% RANs, 4/1/1997 2,301,844
2,500,000 Fenton Area Public Schools, MI, LT GO State Aid Notes, 4.15% TANs,
5/1/1997 2,502,416
2,000,000 Garden City, MI HFA, Hospital Revenue Bonds (Series 1996A) Weekly
VRDNs (Garden City Hospital, Osteopathic)/(First of America Bank -
Michigan LOC) 2,000,000
3,500,000 Garden City, MI School District, State Aid Notes, 4.30% RANs (NBD
Bank, Michigan LOC), 4/15/1997 3,507,622
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
MICHIGAN -- CONTINUED
$ 2,800,000 Michigan Higher Education Student Loan Authority, Refunding
Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC INS)/
(Kredietbank N.V., Brussels LIQ) $ 2,800,000
3,100,000 Michigan Job Development Authority, Limited Obligation Revenue
Bonds Weekly VRDNs (Andersons Project)/(Morgan Guaranty Trust
LOC) 3,100,000
3,000,000 Michigan State Building Authority, (Series 1), 3.65% CP (Canadian
Imperial Bank of Commerce, Toronto LOC), Mandatory Tender
12/12/1996 3,000,000
310,000 Michigan State Hospital Finance Authority, (Series 1994) Weekly
VRDNs (Mt. Clemens General Hospital)/(Comerica Bank, Detroit,
MI LOC) 310,000
2,700,000 Michigan State Hospital Finance Authority, (Series A) Weekly VRDNs
(OSF Health Care Systems) 2,700,000
2,000,000 Michigan State Hospital Finance Authority, Hospital Equipment
Loan Program Bonds (Series A) Weekly VRDNs (First of America
Bank - Michigan LOC) 2,000,000
2,000,000 Michigan State Housing Development Authority, (Series 1990 B)
CR-71, 3.70% TOBs, (Citibank N.A., New York LIQ) Optional
Tender 12/1/1996 2,000,000
4,870,000 Michigan State Housing Development Authority, Revenue Bonds
(Series A), 3.60% CP (Credit Suisse, Zurich LOC), Mandatory Tender
11/21/1996 4,870,000
1,500,000 Michigan State Trunk Line, Refunding Bonds (Series B), 4.00% Bonds
(FGIC INS), 11/15/1996 1,500,138
1,445,000 Michigan State, Recreation Program (Series 1992), 4.85% Bonds,
11/1/1996 1,445,000
2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank
of Tokyo-Mitsubishi Ltd. LOC) 2,000,000
4,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex
Controls Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000
5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA Gas,
Inc.)/(Svenska Handelsbanken, Stockholm LOC) 5,620,000
900,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood
Industries, Inc. Project)/(NBD Bank, Michigan LOC) 900,000
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
MICHIGAN -- CONTINUED
$ 1,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation
Revenue and Revenue Refunding Bonds (Series 1996) Weekly VRDNs
(C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC) $ 1,500,000
6,000,000 Michigan Strategic Fund, Limited Obligation PCR (Series 1993)
Weekly VRDNs (Allied-Signal, Inc.) 6,000,000
995,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Rowe Thomas Company Project)/(Comerica
Bank, Detroit, MI LOC) 995,000
1,100,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1991) Weekly VRDNs (Martin Luther Memorial Home, Inc.)/(National
Australia Bank, Ltd., Melbourne LOC) 1,100,000
3,860,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Bear Lake Associates Project)/(Old Kent Bank
& Trust Co., Grand Rapids LOC) 3,860,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Hercules Drawn Steel Corporation Project)/
(KeyBank, N.A. LOC) 1,000,000
2,870,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (J.R. Automation Technologies Project)/(Old
Kent Bank & Trust Co., Grand Rapids LOC) 2,870,000
1,020,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (RSR Project)/(Old Kent Bank & Trust Co.,
Grand Rapids LOC) 1,020,000
3,800,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc. Project)/
(Comerica Bank, Detroit, MI LOC) 3,800,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (ACI Properties, L.L.C. Project)/(Comerica
Bank, Detroit, MI LOC) 1,000,000
2,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (AVL North America, Inc. Project)/(NBD Bank,
Michigan LOC) 2,000,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank, Detroit, MI LOC) 1,000,000
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
MICHIGAN -- CONTINUED
$ 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Echo Properties, L.L.C. Project)/(Comerica
Bank, Detroit, MI LOC) $ 1,000,000
2,700,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (G & T Real Estate Investments Co., L.L.C.)/
(NBD Bank, Michigan LOC) 2,700,000
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series
1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/(Comerica Bank,
Detroit, MI LOC) 1,000,000
3,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds Weekly
VRDNs (Hess Industries, Inc.)/(Norwest Bank Minnesota,
Minneapolis LOC) 3,300,000
1,900,000 Wayne County, MI, Airport Revenue Refunding Bonds (Series 1996A)
Weekly VRDNs (Detroit Metropolitan Wayne County Airport)/
(Bayerische Landesbank Girozentrale LOC) 1,900,000
3,000,000 Woodhaven, MI School District, State Aid Notes, 4.125% TRANs,
4/30/1997 3,003,194
Total 98,129,214
PUERTO RICO -- 3.8%
4,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory
Tender 2/14/1997 4,000,000
VIRGIN ISLANDS -- 1.9%
2,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding
Bonds (1995 Series B), 3.50% TOBs (Trinity Funding Company INV),
Mandatory Tender 11/1/1996 2,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $104,129,214
</TABLE>
Securities that are subject to the alternative minimum tax represent 53.3%
of the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality.
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($103,889,129) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
CP -- Commercial Paper
EDC -- Economic Development Commission
EDRB -- Economic Development Revenue Bond
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
HFA -- Housing Finance Authority
INS -- Insured
INV -- Investment Agreement
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
RANs -- Revenue Anticipation Notes
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
TRANs -- Tax and Revenue Anticipation Notes
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
Statement of Assets and Liabilities
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 104,129,214
Income receivable 615,979
Receivable for shares sold 92
Deferred expenses 6,160
Total assets 104,751,445
LIABILITIES:
Income distribution payable $ 59,587
Payable to Bank 759,097
Accrued expenses 43,632
Total liabilities 862,316
Net Assets for 103,889,129 shares outstanding $ 103,889,129
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$92,275,457 / 92,275,457 shares outstanding $1.00
INSTITUTIONAL SHARES:
$11,613,672 / 11,613,672 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,505,244
EXPENSES:
Investment advisory fee $ 337,325
Administrative personnel and services fee 145,082
Custodian fees 19,809
Transfer and dividend disbursing agent fees and expenses 48,098
Directors'/Trustees' fees 1,352
Auditing fees 8,396
Legal fees 3,893
Portfolio accounting fees 49,950
Shareholder services fee -- Institutional Service Shares 152,832
Shareholder services fee -- Institutional Shares 15,830
Share registration costs 46,293
Printing and postage 14,277
Insurance premiums 6,540
Miscellaneous 2,435
Total expenses 852,112
Waivers and reimbursements --
Waiver of investment advisory fee $ (337,325)
Waiver of shareholder services fee --
Institutional Service Shares (73,359)
Waiver of shareholder services fee --
Institutional Shares (15,830)
Reimbursement of other operating expenses (94,212)
Total waivers and reimbursements (520,726)
Net expenses 331,386
Net investment income $ 2,173,858
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1996 1995(a)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,173,858 $ 235,600
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Service Shares (1,958,685) (235,600)
Institutional Shares (215,173) --
Change in net assets resulting from distributions to shareholders (2,173,858) (235,600)
SHARE TRANSACTIONS --
Proceeds from sale of shares 318,706,288 41,468,554
Net asset value of shares issued to shareholders in payment
of distributions declared 1,590,062 229,562
Cost of shares redeemed (246,540,494) (11,564,843)
Change in net assets resulting from share transactions 73,755,856 30,133,273
Change in net assets 73,755,856 30,133,273
NET ASSETS:
Beginning of period 30,133,273 --
End of period $ 103,889,129 $ 30,133,273
</TABLE>
(a) For the period from June 20, 1995 (date of initial public investment) to
October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
MICHIGAN MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Michigan Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund
offers two classes of shares: Institutional Service Shares and Institutional
Shares. The investment objective of the Fund is current income exempt from
federal regular income tax and the personal income tax imposed by the State
of Michigan consistent with the stability of principal and liquidity.
Effective March 2, 1996 the Fund added Institutional Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$103,889,129.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1996 1995(a)
INSTITUTIONAL SERVICE SHARES SHARES SHARES
<S> <C> <C>
Shares sold 286,548,847 41,468,554
Shares issued to shareholders in payment of distributions declared 1,585,481 229,562
Shares redeemed (225,992,144) (11,564,843)
Net change resulting from Institutional Service Shares transactions 62,142,184 30,133,273
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(b) 1995
INSTITUTIONAL SHARES SHARES SHARES
<S> <C> <C>
Shares sold 32,157,441 --
Shares issued to shareholders in payment of distributions 4,581 --
declared
Shares redeemed (20,548,350) --
Net change resulting from Institutional Shares transactions 11,613,672 --
Net change resulting from Fund share transactions 73,755,856 30,133,273
</TABLE>
(a) For the period from June 20, 1995 (date of initial public investment) to
October 31, 1995.
(b) For the period from March 2, 1996 (date of initial public investment) to
October 31, 1996.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expense of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimburse at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $18,618 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $1,655 pursuant
to this agreement.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $155,639,000 and $143,539,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt mutual
fund that invests nationally. In order to reduce the credit risk associated
with such factors, at October 31, 1996, 75.1% of the securities in the
portfolio of investments are backed by letters of credit or bond insurance
of various financial institutions and financial guaranty assurance agencies.
The percentage of investments insured by or supported (backed) by a letter
of credit from any one institution or agency did not exceed 8.7% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(MICHIGAN MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Michigan Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1996, the related statement of
operations for the year then ended and the statement of changes in net
assets and the financial highlights (see pages 2 and 15 of the prospectus)
for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Michigan Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996, the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 13, 1996
ADDRESSES
Michigan Municipal Cash Trust
Institutional Service 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
MICHIGAN MUNICIPAL
CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Portfolio of
Federated Municipal Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314229725
G01212-01 (12/96)
MICHIGAN MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Michigan Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[logo]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 314229667
Cusip 314229725
G01212 02 (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
INVESTMENT LIMITATIONS 2
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustees Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
MICHIGAN INVESTMENT RISKS
Michigan's economy continues to be among the most cyclical of states,
remaining heavily dependent on domestic auto production and durable goods
consumption. While manufacturing comprises 23% of the total jobs in the
state, relative to 17% nationally, it comprises a lesser share than in the
1970s when it was 35%. The automobile industry has reduced its share of
employment to 6.9% of total employment, compared with 10.8% in 1979. In
fact, Michigan's economy continues to shift away from durable goods
manufacturing to a more diversified base reliant on services and trade.
This shift to jobs in service and trade industries has, however, resulted
in declines in per capita income relative to the nation.
As of June 1995, unemployment stood at 6.2%, still above the national level
of 5.6%. However, the economic recovery from the early 1990s recession has
proved hearty in Michigan as employment levels reached an all-time high,
attracting more workers into the labor force.
On August 19, 1993, the Governor of Michigan signed into law Act 145,
Public Acts of Michigan, 1993 (Act 145), a measure which significantly
impacted financing of primary and secondary school operations and which has
resulted in additional property tax and school reform legislation.
Michigan's school finance reform shifts the responsibility of funding
schools away from the local district and their real property tax bases to
the state and an earmarked portion of sales taxes. Moreover, the state
government is also subject to a revenue raising cap which is tied to the
annual state personal income growth. The margin between existing revenue
and the constitutional cap is greatly narrowed now that the state absorbs
the costs of funding the local schools. Over the long term the cap may
reduce the state's flexibility to deal with adverse financial developments.
Concerning Michigan's fiscal policy, the state has proven that it can
maintain a balanced budget, low debt levels and high reserves. While the
state's Rainy Day Fund was drawn down substantially during fiscal years
1990-92 in order to meet budget needs of the state during fiscal stress,
spending restraint and an improved economy enabled the state to begin to
restore balances in fiscal 1993. By the end of fiscal 1995, the Budget
Stabilization Fund reached an historically high level with a continuation
of this position currently projected for the year ending September 30,
1996.
While Michigan's economy is in good standing now because of conservative
budgeting practices and the improved economy, the enduring effectiveness of
the state's financial management will continue to be tested by economic
cycles.
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 the value 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold portfolio securities permitted by its investment objective, policies,
and limitations or 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 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 invest 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,
except that the Fund may invest 25% or more of the value of its total
assets in cash, cash items, or securities issued or guaranteed by the
government of the United States or its agencies, or instrumentalities and
repurchase agreements collateralized by such U.S. government securities.
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 certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days after notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
Shares.
As of December 2, 1996, the following shareholder(s) of record owned 5% or
more of the outstanding shares of the Michigan Municipal Cash Trust -
Institutional Shares: Sunatco Partnership, Hancock, MI, ( 11.51%); and
First Mar & Co., Marquette, MI, ( 71.16%).
As of December 2, 1996, the following shareholder(s) of record owned 5% or
more of the outstanding shares of the Michigan Municipal Cash Trust -
Institutional Service Shares: Enbanco, Traverse City, MI, ( 5.80%);
McDonald & Co. Securities, Inc., Cincinnati, OH, (37.98%); Walbridge-White,
Detroit, MI, (6.20%); and Metamora Products Corporation, ( 5.05%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 Michigan Municipal Cash 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 Michigan Municipal Cash Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. For the fiscal year
ended October 31, 1996, and for the period from June 20, 1995 (date of
initial public investment) to October 31, 1995, the adviser earned
$337,325, and $32,107, respectively, of which $337,325 and $32,107
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the period from March 2, 1996 (date of initial
public investment) to October 31, 1996, Institutional Shares of the Fund
paid no brokerage commissions. During the fiscal year ended October 31,
1996, Institutional Service Shares of 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31, 1996, and
for the period from June 20, 1995 (date of initial public investment) to
October 31, 1995, the Administrators earned $145,082,and $45,548,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to shareholders;
(2) investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the period from March 2,1996 (date of initial public investment) to
October 31, 1996, the Fund paid shareholder service fees in the amount of
$15,830 on behalf of Institutional Shares, all of which were waived. For
the fiscal year ended October 31, 1996, the Fund paid shareholder service
fees in the amount of $152,832 on behalf of Institutional Service Shares,
of which $73,359 were waived.
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.
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.
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, 1996, the yield for
Institutional Shares and Institutional Service Shares was 3.35% and 3.22%,
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, 1996, the effective yield for
Institutional Shares and Institutional Service Shares was 3.41%, and 3.27%,
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 44% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yield
for Institutional Shares and Institutional Service Shares was 5.98%,and
5.75%, 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 1996
STATE OF MICHIGAN
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.40% 32.40% 35.40% 40.40% 44.00%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%
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.
Cumulative total return reflects the total performance over a specific
period of time. For the period from March 2, 1996 (date of initial public
investment) through October 31, 1996, the cumulative total return for
Institutional Shares was 2.19%. This total return is representative of
only eight months of activity since the date of initial public investment.
For the one- year period ended October 31, 1996 and for the period from
June 20, 1995 (date of initial public investment) through October 31, 1996
the average annual total returns were 3.26% and 3.38%, respectively, for
Institutional Service Shares.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
GEORGIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
PROSPECTUS
The Shares of Georgia Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Georgia municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Georgia, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and the income tax imposed by the State of Georgia consistent
with stability of principal and liquidity.
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. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Georgia Municipal Securities 5
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
Special Purchase Features 10
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 26
- ------------------------------------------------------
ADDRESSES 27
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)...................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.10%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.49%
Shareholder Services Fee................................................ 0.25%
Total Operating Expenses(2)........................................ 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The Total Operating Expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1997. The Total Operating
Expenses were 0.46% for fiscal year ended October 31, 1996 and would have been
0.98% absent the voluntary waiver of a portion of the management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Fund Information". Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period........... $6 $19 $33 $ 74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
GEORGIA MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------------
1996 1995(a)
-------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- ----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------
Net investment income 0.03 0.01
- ----------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------
Distributions from net investment income (0.03) (0.01)
- ---------------------------------------------------------------- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ---------------------------------------------------------------- ----- -----
TOTAL RETURN(b) 3.37% 0.73%
- ----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------
Expenses 0.46% 0.25%*
- ----------------------------------------------------------------
Net investment income 3.31% 3.81%*
- ----------------------------------------------------------------
Expense waiver/reimbursement (c) 0.52% 0.75%*
- ----------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------
Net assets, end of period (000 omitted) $122,940 $111,278
- ----------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 22, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term municipal securities.
The Fund may not be a suitable investment for retirement plans or for
non-Georgia taxpayers because it invests in municipal securities of that state.
A minimum initial investment of $10,000 over 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
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the State of Georgia consistent
with stability of principal and liquidity. 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 complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days 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 income taxes imposed by
the State of Georgia. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of 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 Georgia 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 the income taxes imposed by the State of Georgia ("Georgia Municipal
Securities"). Examples of Georgia Municipal Securities include, but are not
limited to:
- tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes 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 Georgia
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Georgia 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund and affect its share
price. The Fund may have more than 25% of its total assets invested in
securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand
feature may be issued by the issuer of the underlying securities, a dealer in
the securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide the
Fund with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership, or default by the
issuer of the demand feature, or a default on the underlying security or other
event that terminates the demand feature before its exercise, will adversely
affect the liquidity of the underlying security. Demand features that are
exercisable even after a payment default on the underlying security may be
treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. 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, together with other illiquid securities, 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, all of comparable quality
to other securities in which the Fund invests, 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 depository institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Georgia
Municipal Securities is subject to the federal alternative minimum tax.
GEORGIA MUNICIPAL SECURITIES
Georgia 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.
Georgia 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 Georgia 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 Georgia 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 Georgia 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 Georgia
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Georgia 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
Georgia 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 Georgia 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. Due to these risk considerations, the
Fund's concentration in Georgia Municipal Securities may entail a greater level
of risk than other types of money market funds.
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 assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
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 the average
daily net asset value of Fund shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of 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, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Georgia Municipal Cash
Trust; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made
payable to: Georgia Municipal Cash Trust. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn
periodically from the shareholder's checking account at an Automated Clearing
House ("ACH") member and invested in Fund shares. Shareholders should contact
their financial institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed at
the net asset value next determined after Federated Shareholder Services Company
receives the redemption request. According to the shareholder's instructions,
redemption proceeds can be sent to the financial institution or to the
shareholder by check or by wire. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Fund provided the Fund has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests before 12:00 noon (Eastern time) 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, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Under limited circumstances,
arrangements may be made with the distributor for same-day payment of proceeds,
without that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time). Proceeds from redeemed shares purchased by check or through ACH
will not be wired until that method of payment has cleared. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any
time the Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue to
receive the daily dividend declared on the shares to be redeemed until the check
is presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred electronically
to any commercial bank, savings bank, or credit union that is an ACH member.
Shareholders may apply for participation in this program through their financial
institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$10,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of each portfolio in the Trust have equal
voting rights; except that in matters affecting only a particular portfolio,
only shareholders of that portfolio are entitled to vote. 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
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
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, within the limits of its investment policies, 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
Georgia. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
GEORGIA TAXES. Under existing Georgia law, shareholders of the Fund will not be
subject to individual or corporate Georgia income taxes on distributions from
the Fund to the extent that such distributions represent exempt-interest
dividends for federal income tax purposes that are attributable to (1)
interest-bearing obligations issued by or on behalf of the State of Georgia or
its political subdivisions, or (2) interest on obligations of the United States
or of any other issuer whose obligations are exempt from state income taxes
under federal law. Distributions, if any, derived from capital gains or other
sources generally will be taxable for Georgia income tax purposes to
shareholders of the Fund who are subject to the Georgia income tax.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
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
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
GEORGIA MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS--98.8%
- -------------------------------------------------------------------------------
GEORGIA--96.4%
---------------------------------------------------------------
$ 1,000,000 Athens, GA Water & Sewer District, (Series A), 7.60% Bonds $ 1,026,895
(United States Treasury PRF), 1/1/1997 (@102)
---------------------------------------------------------------
5,000,000 Athens-Clarke County, GA IDA, (Series 1988), 3.70% CP (Rhone 5,000,000
Merieux, Inc. Project)/(Societe Generale, Paris LOC), Mandatory
Tender 11/18/1996
---------------------------------------------------------------
1,600,000 Atlanta, GA, Urban Residential Finance Authority, Multifamily 1,600,000
Housing Revenue Bonds (Series 1995) Weekly VRDNs (West End
Housing Development Project)/(First Union National Bank,
Charlotte, NC LOC)
---------------------------------------------------------------
4,800,000 Atlanta, GA, Urban Residential Finance Authority, Multifamily 4,800,000
Rental Housing Revenue Refunding Bonds (Series 1988A), 3.90%
TOBs (West Paces Club Towers Project)/(Sanwa Bank Ltd, Osaka
LOC), Optional Tender 11/1/1996
---------------------------------------------------------------
2,500,000 Brunswick and Glynn County, GA Development Authority, Multi- 2,500,000
Mode Variable Rate IDRB (Series 1996) Weekly VRDNs (Daewoo
Equipment Corp.)/(KeyBank, N.A. LOC)
---------------------------------------------------------------
3,925,000 Brunswick, GA, Housing Authority, (Series S93) Weekly VRDNs 3,925,000
(Island Square Apartments)/(Columbus Bank and Trust Co.,
GA LOC)
---------------------------------------------------------------
3,400,000 Burke County, GA Development Authority, (Series 1992A), 3.65% 3,400,000
CP (Oglethorpe Power Corp.)/(Credit Suisse, Zurich LOC),
Mandatory Tender 1/23/1997
---------------------------------------------------------------
1,950,000 Carrolton, GA Payroll Development Authority, (Series 1993) 1,950,000
Weekly VRDNs (Sunox, Inc. Project)/(First Union National Bank,
Charlotte, NC LOC)
---------------------------------------------------------------
1,885,000 Cherokee County, GA Development Authority, IDRB Weekly VRDNs 1,885,000
(Morrison Products, GA)/(KeyBank, N.A. LOC)
---------------------------------------------------------------
2,300,000 Clayton County, GA Development Authority, (Series 1994) Weekly 2,300,000
VRDNs (Lear Seating Corp.)/(Chase Manhattan Bank N.A., New York
LOC)
---------------------------------------------------------------
</TABLE>
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
<C> <S> <C>
GEORGIA--CONTINUED
---------------------------------------------------------------
$ 1,800,000 Cobb County, GA IDA, IDRB (Series 1995) Weekly VRDNs $ 1,800,000
(Consolidated Engineering Company, Inc. Project)/(NationsBank,
South LOC)
---------------------------------------------------------------
1,365,000 Cobb County, GA, Water & Sewer, 5.00% Bonds, 7/1/1997 1,374,656
---------------------------------------------------------------
1,170,000 Columbia County, GA Development Authority, (Series 1991) Weekly 1,170,000
VRDNs (Augusta Sportswear, Inc.)/(Wachovia Bank of Georgia
N.A., Atlanta LOC)
---------------------------------------------------------------
1,330,000 Columbus, GA IDA, (Series 90B) Weekly VRDNs (R. P. Real Estate, 1,330,000
Inc.)/(Columbus Bank and Trust Co., GA LOC)
---------------------------------------------------------------
3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco 3,000,000
L.L.C. Project)/(NBD Bank, Michigan LOC)
---------------------------------------------------------------
6,000,000 Crisp County, GA Development Authority, (Series B), 4.10% TOBs 6,000,000
(Masonite Corporation)/(International Paper Co. GTD), Optional
Tender 9/1/1997
---------------------------------------------------------------
3,250,000 Dalton, GA, 3.98% TANs, 12/31/1996 3,250,931
---------------------------------------------------------------
1,580,000 De Kalb County, GA Development Authority, (Series 1992) Weekly 1,580,000
VRDNs (House of Cheatham, Inc. Project)/(NationsBank, South
LOC)
---------------------------------------------------------------
600,000 De Kalb County, GA Development Authority, (Series 1993) Weekly 600,000
VRDNs (Pet, Inc.)/(PNC Bank, N.A. LOC)
---------------------------------------------------------------
2,950,000 Douglas County, GA School District, 3.75% TANs, 12/31/1996 2,952,356
---------------------------------------------------------------
1,000,000 Floyd County, GA, (Series 1996), 3.49% TANs, 12/31/1996 1,000,142
---------------------------------------------------------------
1,000,000 Forsythe County, GA Development Authority, IDRB (Series 1995) 1,000,000
Weekly VRDNs (American BOA, Inc. Project)/(Dresdner Bank Ag,
Frankfurt LOC)
---------------------------------------------------------------
1,000,000 Fulton County, GA Building Authority, 8.20% Bonds (United 1,027,513
States Treasury PRF), 1/1/1997 (@102)
---------------------------------------------------------------
2,335,000 Fulton County, GA Housing Authority, Multifamily Housing 2,335,000
Revenue Bonds (Series 1993) Weekly VRDNs (Provence North
Apartments Project)/(Federal Home Loan Bank of Atlanta LOC)
---------------------------------------------------------------
</TABLE>
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
<C> <S> <C>
GEORGIA--CONTINUED
---------------------------------------------------------------
$ 3,655,000 Fulton County, GA IDA Weekly VRDNs (C.K.S. Packaging, Inc.)/ $ 3,655,000
(SouthTrust Bank of Georgia, Atlanta LOC)
---------------------------------------------------------------
1,000,000 Fulton County, GA School District, 7.625% Bonds (United States 1,047,552
Treasury PRF), 5/1/1997 (@103)
---------------------------------------------------------------
2,000,000 Georgia State Port Authority, (Series 1996A) Weekly VRDNs 2,000,000
(Colonel's Island Terminal)/(SunTrust Bank, Atlanta LOC)
---------------------------------------------------------------
4,585,000 Georgia State HFA, (Series 1990C), 3.75% TOBs (First National 4,585,000
Bank of Chicago LIQ), Optional Tender 12/1/1996
---------------------------------------------------------------
4,000,000 Georgia State Municipal Gas Authority, Gas Revenue Bonds 4,000,000
(Series D), 3.60% CP (Wachovia Bank of NC, N.A., Winston-Salem
LOC), Mandatory Tender 11/21/1996
---------------------------------------------------------------
2,000,000 Georgia State Municipal Gas Authority, Gas Revenue Bonds 2,000,000
(Series D), 3.65% CP (Wachovia Bank of NC, N.A., Winston-Salem
LOC), Mandatory Tender 11/19/1996
---------------------------------------------------------------
1,000,000 Glynn County, GA, 3.60% TANs, 12/31/1996 1,000,318
---------------------------------------------------------------
1,000,000 Gwinnett County, GA School District, UT GO (Series B), 5.45% 1,004,756
Bonds, 2/1/1997
---------------------------------------------------------------
3,375,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler 3,375,000
Quality Yarns Corporation Project)/(Union Bank of Switzerland,
Zurich LOC)
---------------------------------------------------------------
3,180,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds, 3,180,000
4.25% TOBs (Lee's Crossing Project Phase II)/(Barnett Bank,
N.A. LOC), Optional Tender 11/1/1996
---------------------------------------------------------------
3,000,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds, 3,000,000
4.25% TOBs (Lee's Crossing Project Phase I)/(Barnett Bank, N.A.
LOC), Optional Tender 11/1/1996
---------------------------------------------------------------
660,000 Macon-Bibb County, GA Industrial Authority, IDRB (Series 1990) 660,000
Weekly VRDNs (Diamond Plastics Corporation Project)/
(Nationsbank, N.A. LOC)
---------------------------------------------------------------
</TABLE>
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
<C> <S> <C>
GEORGIA--CONTINUED
---------------------------------------------------------------
$ 5,000,000(b) Marietta, GA Housing Authority, Multifamily Housing Revenue $ 5,000,000
Bonds (Series 1995) Weekly VRDNs (Chalet Apartments Project)/
(General Electric Capital Corp. LOC)
---------------------------------------------------------------
1,600,000 Municipal Electric Authority of Georgia, (Series 1985A), 3.50% 1,600,000
CP (Bayerische Landesbank Girozentrale, Credit Suisse, Zurich
and Morgan Guaranty Trust Co., New York LOCs), Mandatory Tender
12/10/1996
---------------------------------------------------------------
3,000,000 Municipal Electric Authority of Georgia, (Series 1994B), 3.50% 3,000,000
CP (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender
12/10/1996
---------------------------------------------------------------
2,000,000 Municipal Electric Authority of Georgia, (Series 1994B), 3.80% 2,000,000
CP (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender
1/15/1997
---------------------------------------------------------------
4,000,000 Municipal Electric Authority of Georgia, (Series 1996A), 4.75% 4,006,574
Bonds (AMBAC INS), 1/1/1997
---------------------------------------------------------------
1,000,000 Richmond County, GA Development Authority, Solid Waste Disposal 1,000,000
Revenue Bonds, (Series 1995) Weekly VRDNs (Federal Paper Board
Co., Inc.)/(Wachovia Bank of Georgia N.A.,
Atlanta LOC)
---------------------------------------------------------------
1,000,000 Rockdale County, GA Development Authority, (Series 1995) Weekly 1,000,000
VRDNs (Great Southern Wood Preserving Co.)/(SunTrust Bank,
Central Florida LOC)
---------------------------------------------------------------
4,600,000 Roswell, GA Housing Authority, Multifamily Housing Refunding 4,600,000
Revenue Bonds (Series 1988A) Weekly VRDNs (Belcourt Ltd.
Project)/(Northern Trust Co., Chicago, IL LOC)
---------------------------------------------------------------
1,000,000 Screven County, GA IDA, (Series 1995) Weekly VRDNs (Sylvania 1,000,000
Yarn Systems, Inc. Project)/(SunTrust Bank, Atlanta LOC)
---------------------------------------------------------------
1,000,000 Wayne County, GA, IDA, Revenue Bonds, (Series 1995) Weekly 1,000,000
VRDNs (Harsco Corp.)/(NationsBank, N.A. LOC)
---------------------------------------------------------------
4,000,000 Whitfield County, GA Development Authority Weekly VRDNs 4,000,000
(Franklin Industries Inc., Project)/(NationsBank, N.A. LOC)
---------------------------------------------------------------
</TABLE>
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
<C> <S> <C>
GEORGIA--CONTINUED
---------------------------------------------------------------
$ 2,350,000 Whitfield County, GA Development Authority, (Series 1996) $ 2,350,000
Weekly VRDNs (AMC International, Inc. Project)/(SouthTrust Bank
of Alabama, Birmingham LOC)
---------------------------------------------------------------
1,565,000 Winder-Barrow Industrial Building Authority, (Series 1996) 1,565,000
Weekly VRDNs (Windor Builders Supply, Inc. Project)/(National
Bank of Canada, Montreal LOC)
--------------------------------------------------------------- ------------
Total 118,436,693
--------------------------------------------------------------- ------------
PUERTO RICO--2.4%
---------------------------------------------------------------
3,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory 3,000,000
Tender 2/14/1997
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $121,436,693
--------------------------------------------------------------- ------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 57.0% of the
portfolio as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. Are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSRO's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1996, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
- ----------- ------------
<S> <C>
95.06% 4.94%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $5,000,000, which represents 4.1% of net assets.
(c) Also represents cost for federal tax purposes.
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($122,940,033) at October 31, 1996.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
CP --Commercial Paper
GO --General Obligation
GTD --Guaranty
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDRB --Industrial Development Revenue Bond
INS --Insured
LIQ --Liquidity Agreement
LOC(s) --Letter of Credit(s)
PRF --Prerefunded
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GEORGIA MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $121,436,693
- -------------------------------------------------------------------------------
Cash 697,216
- -------------------------------------------------------------------------------
Income receivable 964,697
- -------------------------------------------------------------------------------
Receivable for shares sold 1,403
- -------------------------------------------------------------------------------
Deferred expenses 22,800
- ------------------------------------------------------------------------------- ------------
Total assets 123,122,809
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed $ 2,297
- --------------------------------------------------------------------
Income distribution payable 128,766
- --------------------------------------------------------------------
Accrued expenses 51,713
- -------------------------------------------------------------------- --------
Total liabilities 182,776
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 122,940,033 shares outstanding $122,940,033
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
$122,940,033 / 122,940,033 shares outstanding $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GEORGIA MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $4,425,034
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 586,560
- ----------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ----------------------------------------------------------------------
Custodian fees 25,024
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 20,430
- ----------------------------------------------------------------------
Directors'/Trustees' fees 1,425
- ----------------------------------------------------------------------
Auditing fees 8,396
- ----------------------------------------------------------------------
Legal fees 2,470
- ----------------------------------------------------------------------
Portfolio accounting fees 41,104
- ----------------------------------------------------------------------
Shareholder services fee 293,280
- ----------------------------------------------------------------------
Share registration costs 32,351
- ----------------------------------------------------------------------
Printing and postage 6,374
- ----------------------------------------------------------------------
Insurance premiums 6,189
- ----------------------------------------------------------------------
Miscellaneous 7,225
- ---------------------------------------------------------------------- ---------
Total expenses 1,155,828
- ----------------------------------------------------------------------
Waivers--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $(559,762)
- ----------------------------------------------------------
Waiver of shareholder services fee (54,088)
- ---------------------------------------------------------- ---------
Total waivers (613,850)
- ---------------------------------------------------------------------- ---------
Net expenses 541,978
- ----------------------------------------------------------------------------------- ----------
Net investment income $3,883,056
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GEORGIA MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995(a)
---------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------
Net investment income $ 3,883,056 $ 663,846
- ------------------------------------------------------ --------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------
Distributions from net investment income (3,883,056) (663,846)
- ------------------------------------------------------ --------------- -----------------
SHARE TRANSACTIONS--
- ------------------------------------------------------
Proceeds from sale of shares 594,865,591 276,631,071
- ------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 2,027,740 363,049
- ------------------------------------------------------
Cost of shares redeemed (585,230,921) (165,716,497)
- ------------------------------------------------------ --------------- -----------------
Change in net assets resulting from share
transactions 11,662,410 111,277,623
- ------------------------------------------------------ --------------- -----------------
Change in net assets 11,662,410 111,277,623
- ------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------
Beginning of period 111,277,623 --
- ------------------------------------------------------ --------------- -----------------
End of period $ 122,940,033 $ 111,277,623
- ------------------------------------------------------ --------------- -----------------
</TABLE>
(a) For the period from August 22, 1995 (date of initial public investment) to
October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
GEORGIA MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Georgia Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the State of Georgia consistent with stability of
principal and liquidity.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from the Fund's
commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
October 31, 1996, capital paid-in aggregated $122,940,033.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1996 1995(a)
- ---------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 594,865,591 276,631,071
- ----------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 2,027,740 363,049
- ----------------------------------------------------------------
Shares redeemed (585,230,921) (165,716,497)
- ---------------------------------------------------------------- ------------ -----------
Net change resulting from share transactions 11,662,410 111,277,623
- ---------------------------------------------------------------- ------------ -----------
</TABLE>
(a) Reflects operations for the period from August 22, 1995 (date of initial
public investment) to October 31, 1995.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent
GEORGIA MUNICIPAL CASH TRUST
- --------------------------------------------------------------------------------
for the Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $13,648 were borne initially
by Adviser. The Fund has agreed to reimburse Adviser for the organizational
expenses during the five year period following effective date. For the period
ended October 31, 1996, the Fund paid $1,062 pursuant to this agreement.
INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $337,190,000 and $392,439,429, respectively.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1996, 82.5% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 7.4% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Georgia Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Georgia
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1996 and the related statement of operations for
the year then ended and the statement of changes in net assets and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Georgia Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1996, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Georgia Municipal Cash Trust
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- -----------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- -----------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GEORGIA MUNICIPAL
CASH TRUST
PROSPECTUS
A Portfolio of Federated Municipal
Trust,
an Open-End Management
Investment Company
Prospectus dated December 31, 1996
LOGO
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 1522-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 3142229691
G01204-01 (12/96)
GEORGIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Georgia Municipal Cash Trust (the ``Fund'), a portfolio
of Federated Municipal Trust (the ``Trust') dated December 31, 1996.
This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[logo]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314229691
G01204-02 (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
GEORGIA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 2
FEDERATED MUNICIPAL TRUST MANAGEMENT 4
Share Ownership 8
Trustees Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
GEORGIA INVESTMENT RISKS
Georgia's AAA rating by Fitch, Aaa rating by Moody's, and AA+ rating by S&P
reflect the state's positive economic trends, conservative financial
management, improved financial position, and low debt burden. While the
state's economy was affected by the early 1990s recession, Georgia's
economy has grown rapidly for the past two years with steady gains in
employment and personal income per capita versus the national figure.
Georgia ranks among the top five states in the nation in employment and
total population growth reflecting the state's strong economic expansion.
Job growth has been mainly centered in business and health services.
Manufacturing employment grew slightly. Total non-farm employment grew
4.2% in 1995, well above the U.S. rate of 1.8%. As of April 1996, the
state's unemployment rate was 4.2% while the national rate stood at 5.4%.
The state's economy received a boost from the economic activity associated
with the 1996 Olympic Games. The economic benefit of the games spawned
considerable construction activity as well as additional revenue from the
events.
The state closed fiscal 1995 with positive financial results, and the
revenue shortfall reserve fully funded at $288 million (3.0% of revenues).
The state expects to end fiscal 1996 with strong year-end balances.
Lottery Reserves will be increased to $128.8 million and the state has
appropriated $103 million of fiscal 1996 surplus to pre-fund fiscal year
1997 debt service.
The fund's concentration in securities issued by Georgia and its political
subdivisions provide a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of
Georgia or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political and demographic
conditions within Georgia; 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 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 the measure
or to facilitate management of the portfolio by enabling the Fund to meet
redemption requests value 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold portfolio securities permitted by its investment objective, policies,
and limitations, or 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 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 invest 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,
except that the Fund may invest 25% or more of the value of its total
assets in cash, cash items, or securities issued or guaranteed by the
government of the United States or its agencies, or instrumentalities and
repurchase agreements collateralized by such U.S. government securities.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Georgia Municipal Cash Trust: Apps
Dental, Inc. owned approximately 10,026,565 shares (8.25%); Cobatco owned
approximately 21,019,708 shares (17.29%); Wachovia Bank of North Carolina
owned approximately 26,515,367 shares (21.81%); Column Financial, Inc.
owned approximately 7,854,640 shares (6.46%); and BHC Securities, Inc.
owned approximately 12,596,222 shares (10.36%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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, 1996, and for the period from August 22, 1995 (date
of initial public investment) through October 31, 1995, the adviser earned
$586,560, and $87,222, respectively, of which $559,762, and $87,222,
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended October 31, 1996, and for
the period from August 22, 1995 (date of initial public investment) through
October 31,1995, 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended October 31,1996, and
for the period from August 22, 1995 (date of initial public investment)
through October 31, 1995, the Administrators earned $125,000, and $23,973,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will
benefit by: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending October 31, 1996, the Fund paid shareholder
services fees in the amount of $293,280, of which $54,088 was waived.
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.
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.
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.
The Fund's yield for the seven-day period ended October 31, 1996, was
3.18%.
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. The Fund's effective
yield for the seven-day period ended October 31, 1996, was 3.23%.
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 45.60% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
The Fund's tax-equivalent yield for the seven-day period ended October 31,
1996, was 5.85%.
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 1996
STATE OF GEORGIA
COMBINED FEDERAL
AND STATE:21.000% 34.000% 37.000% 42.000% 45.600%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00% 2.53% 3.03% 3.17% 3.45% 3.68%
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00% 3.80% 4.55% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.56% 6.03% 6.43%
4.00% 5.06% 6.06% 6.35% 6.90% 7.35%
4.50% 5.70% 6.82% 7.14% 7.76% 8.27%
5.00% 6.33% 7.58% 7.94% 8.62% 9.19%
5.50% 6.96% 8.33% 8.73% 9.48% 10.11%
6.00% 7.59% 9.09% 9.52% 10.34% 11.03%
6.50% 8.23% 9.85% 10.32% 11.21% 11.95%
7.00% 8.86% 10.61% 11.11% 12.07% 12.87%
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.
The Fund's average annual total returns for the one-year period ended
October 31, 1996, and for the period from August 22, 1995 (date of initial
public investment) through October 31, 1996, were 3.37% and 3.44%,
respectively.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
TENNESSEE MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL CASH TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Tennessee Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Tennessee municipal
securities, including securities of states, territories, and possessions of
the United States which are not issued by or on behalf of Tennessee, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and the personal income tax
imposed by the State of Tennessee consistent with stability of principal and
liquidity.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Tennessee Municipal Securities 6
Investment Risks 6
Investment Limitations 7
Hub and Spoke(R) Option 7
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
HOW TO REDEEM SHARES 10
ACCOUNT AND SHARE INFORMATION 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 13
PERFORMANCE INFORMATION 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 14
FINANCIAL STATEMENTS 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
25
ADDRESSES 26
</TABLE>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.35%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.35%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The Total Operating Expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1997. The Total
Operating Expenses were 0.10% for fiscal year ended October 31, 1996
and would have been 1.72% absent the voluntary waivers of the management
fee and the shareholder services fee and the voluntary reimbursement of
certain other operating expenses.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Institutional Shares of
the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $4 $11 $20 $44
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
TENNESSEE MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants
on page 25.
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(b) 1.59%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.10%*
Net investment income 3.57%*
Expense waiver/reimbursement(c) 1.62%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees have established two classes of
shares known as Institutional 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 capacity
as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term municipal securities. The Fund
may not be a suitable investment for retirement plans or for non-Tennessee
taxpayers because it invests in municipal securities of that state. A
minimum initial investment of $25,000 over 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
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 State of
Tennessee consistent with stability of principal and liquidity. 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 State of Tennessee. (Federal regular
income tax does not include the federal individual alternative minimum tax
or the federal alternative minimum tax for corporations.) Unless indicated
otherwise, the investment policies may be changed by the Board of 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 Tennessee 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 the personal income taxes imposed by the
State of Tennessee ("Tennessee Municipal Securities"). Examples of Tennessee
Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Tennessee
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Tennessee 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Tennessee Municipal Securities is subject to the federal alternative minimum
tax.
TENNESSEE MUNICIPAL SECURITIES
Tennessee 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.
Tennessee 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 Tennessee 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 Tennessee 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 Tennessee 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 Tennessee Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in Tennessee 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 Tennessee 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 Tennessee 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. Due to these risk
considerations, the Fund's concentration in Tennessee Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge assets to
secure such borrowings. These investment limitations cannot be changed
without shareholder approval.
HUB AND SPOKE* OPTION
If the Trustees determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its objective by
investing all of its assets in another investment company having the same
investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.
The initial shareholder of the Fund voted to vest authority to use this
investment structure in the sole discretion of the Trustees. No further
approval of shareholders is required. Shareholders will receive at least
30 days notice prior to any such investment.
In making its determination, the Trustees will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although it is expected that the Trustees
will not approve an arrangement that is likely to result in higher costs, no
assurance is given that costs will remain the same or be materially reduced if
this investment structure is implemented.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
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 .25% of
the average daily net asset value of the Institutional Shares, computed at
an annual rate, to obtain certain personal services for shareholders and
to maintain shareholder accounts. From time to time and for such periods
as deemed appropriate, the amount stated above may be reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp.
and Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished
by the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
<C> <S>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Tennessee Municipal Cash Trust -- Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Tennessee Municipal Cash
Trust -- Institutional Shares. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next
day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Proceeds
from redemption requests on holidays when wire transfers are restricted will
be wired the following business day. Questions about telephone redemptions on
days when wire transfers are restricted should be directed to your shareholder
services representative at the telephone number listed on your account
statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company, or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $25,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of November 5, 1996, Trust Company of Knoxville, organized in the State
of Tennessee owned 34.10% of the voting securities of the Institutional
Shares of the Fund, and Berman Family Investment LP owned 37.52% of the
voting securities of the Institutional Service Shares of the Fund.
Therefore, they 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.
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, within the limits of its investment
policies, 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
Tennessee. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
TENNESSEE TAXES. Under existing Tennessee law, distributions made by the
Fund will not be subject to Tennessee personal income taxes to the extent
that such distributions qualify as "exempt-interest dividends" under the
Internal Revenue Code, and represent (i) interest on obligations of the
state of Tennessee or its political subdivisions; or (ii) interest on
certain obligations of the United States, or any agency or instrumentality
thereof. To the extent that distributions by the Fund are derived from
distributions on other types of obligations, such distributions will be
subject to Tennessee personal income taxes.
Distributions made by the Fund will be subject to the excise taxes imposed
on corporations.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold primarily to financial
institutions acting in an agency capacity. Institutional Service Shares are
sold at net asset value and are subject to a Shareholder Services Agreement.
Investments in Institutional Service Shares are subject to a minimum initial
investment of $10,000 over a 90-day period.
Institutional Shares and Institutional Service Shares are subject to certain
of the same expenses. Expense differences between classes may affect the
performance of each class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
TENNESSEE MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants
on page 25.
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(b) 1.48%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39%*
Net investment income 3.26%*
Expense waiver/reimbursement(c) 1.33%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $29,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 103.0%
TENNESSEE -- 98.8%
$ 2,200,000 Benton County, TN IDB, (Series 1996) Weekly VRDNs (Jones Plastic
and Engineering Corp.)/(National City Bank, Kentucky LOC) $ 2,200,000
1,300,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/(SunTrust
Bank, Atlanta LOC) 1,300,000
1,100,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken Hospital)/(Sumitomo
Bank Ltd., Osaka LOC) 1,100,000
1,000,000 Cocke County, TN IDB Weekly VRDNs (GLI, Inc.)/(Great Lakes
Chemical Corp. GTD) 1,000,000
510,000 Cocke County, TN IDB, (Series 1988) Weekly VRDNs (GLI, Inc.)/
(Great Lakes Chemical Corp. GTD) 510,000
2,000,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs (Tennessee
Bun Company, LLC Project)/(PNC Bank, Ohio, N.A. LOC) 2,000,000
1,550,000 Greenfield, TN IDB, IDRB, (Series 1995) Weekly VRDNs (Plastic
Products Company Project)/(Norwest Bank Minnesota, Minneapolis
LOC) 1,550,000
4,200,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui Ta
Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,200,000
2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty Machine
Co. Project)/(First Union National Bank, Charlotte, N.C. LOC) 2,900,000
1,800,000 Jackson County, TN IDB, (Series B) Daily VRDNs (Esselte AB)/(Bank
of America, Illinois LOC) 1,800,000
1,000,000 Jackson, TN IDB , Solid Waste Facility Bonds (Series 1995) Weekly
VRDNs (Florida Steel Corp.)/(NationsBank, South LOC) 1,000,000
1,325,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health Ventures,
Inc. Project)/(SunTrust Bank, Nashville LOC) 1,325,000
400,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern
Healthcare Systems, Inc.)/(Bank One, Texas, N.A. LOC) 400,000
2,400,000 McMinn County, TN IDB, Industrial Development Bonds, (Series
1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank,
Michigan LOC) 2,400,000
</TABLE>
TENNESSEE MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
TENNESSEE -- CONTINUED
$ 770,000 Memphis, TN, (Series 1996), 5.00% Bonds, 7/1/1997 $ 775,446
1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
(Series 1989 A), 3.65% CP (Vanderbilt University), Mandatory Tender
1/10/1997 1,000,000
2,500,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
Hospital Revenue Bonds, (Series 1992), 3.60% CP (Baptist Hospital,
Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/21/1997 2,500,000
1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
Hospital Revenue Bonds, (Series 1992), 3.65% CP (Baptist Hospital,
Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/8/1997 1,000,000
2,300,000 Metropolitan Government Nashville & Davidson County, TN IDB,
Metropolitan Government Revenue Bonds, (Series 1995) Weekly
VRDNs (YMCA Projects)/(Nationsbank of Tennessee LOC) 2,300,000
1,700,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds, (Series 1996) Weekly
VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 1,700,000
300,000 Paris, TN IDB Weekly VRDNs (Plumley - Marugo Limited)/(PNC
Bank, Kentucky LOC) 300,000
700,000 Roane, TN IDB, (Series 1982), 3.50% (Fortafil Fibers, Inc.
Project)/(ABN AMRO Bank N.V., Amsterdam LOC), 11/15/96 700,000
1,000,000 Shelby County, TN Health Education & Housing Facilities Board,
4.05% TOBs (Methodist Health System, Inc.)/(MBIA INS)/(Sanwa
Bank Ltd, Osaka LIQ), Optional Tender 8/1/1997 1,000,000
1,130,000 Shelby County, TN Health Education & Housing Facilities Board,
9.625% Bonds, (Lebonheur Children's Medical Center)/(United States
Treasury PRF), 7/1/1997 (@100) 1,173,395
1,000,000 Shelby County, TN Health Education & Housing Facilities Board,
Multifamily Housing Revenue Bonds, (Series 1988) Weekly VRDNs
(Arbor Lake Project)/(PNC Bank, N.A. LOC) 1,000,000
800,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 800,000
1,000,000 Tennessee Housing Development Agency, (Series 1996-5), 4.00% TOBs,
Mandatory Tender 8/21/1997 1,000,000
</TABLE>
TENNESSEE MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
TENNESSEE -- CONTINUED
$ 1,500,000 Tennessee Housing Development Agency, Homeownership Program
Bonds (Issue 1996-3), 3.85% TOBs, Optional Tender 5/29/1997 $ 1,500,000
2,385,000 Tennessee State School Board Authority, (Series 1996 B), 5.00% Bonds,
5/1/1997 2,398,419
2,000,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler Co.)/
(Wachovia Bank of Georgia NA, Atlanta LOC) 2,000,000
1,500,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper
Container Corporation Project)/(SunTrust Bank, Nashville LOC) 1,500,000
735,000 Williamson County, TN, General Obligation Capital Outlay Notes
(Series 1996), 4.60% Bonds, 10/1/1997 740,432
Total 47,072,692
PUERTO RICO -- 2.1%
1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental
Control Finance Authority, (Series 1994A), 3.80% CP (Inter American
University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory
Tender 1/14/1997 1,000,000
GUAM -- 2.1%
1,000,000 Guam Water System Revenue Bonds, (Series 1989), 6.70% Bonds
(Capital Guaranty Corp. INS), 7/1/1997 1,018,234
TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $ 49,090,926
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 58.8% of
the portfolio as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities, rated SP-1+, SP-1
or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's
Investors Service, Inc., or FIN-1+, FIN-1 and FIN-2 by Fitch Investors
Service, Inc. are all considered rated one of the two highest short-term
rating securities.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security. At October 31, 1996, the portfolio securities were rated as
follows:
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C> <C>
Tier rating percentage based on total market value (unaudited) 100% 0.00%
</TABLE>
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($47,647,706) at October 31, 1996.
The following acronyms are used throughout this portfolio:
CP -- Commercial Paper
GTD -- Guaranty
HEFA -- Health and Education Facilities Authority
IDB -- Industrial Development Bond
IDRB -- Industrial Development Revenue Bond
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $49,090,926
Cash 169,351
Income receivable 260,093
Total assets 49,520,370
LIABILITIES:
Payable for investments purchased $ 1,743,907
Payable for shares redeemed 29,682
Income distribution payable 61,845
Accrued expenses 37,230
Total liabilities 1,872,664
NET ASSETS for 47,647,706 shares outstanding $47,647,706
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$17,823,803 / 17,823,803 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$29,823,903 / 29,823,903 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1996*
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $525,612
EXPENSES:
Investment advisory fee $ 71,830
Administrative personnel and services fee 71,571
Custodian fees 10,324
Transfer and dividend disbursing agent fees and expenses 6,199
Directors'/Trustees' fees 1,379
Legal fees 200
Portfolio accounting fees 26,665
Shareholder services fee -- Institutional Shares 15,852
Shareholder services fee -- Institutional Service Shares 20,063
Share registration costs 14,119
Printing and postage 5,000
Insurance premiums 3,265
Miscellaneous 686
Total expenses 247,153
Waivers and reimbursements --
Waiver of investment advisory fee $ (71,830)
Waiver of shareholder services fee -- Institutional Shares (15,852)
Reimbursement of other operating expenses (121,760)
Total waivers and reimbursements (209,442)
Net expenses 37,711
Net investment income $487,901
</TABLE>
* For the period from May 22, 1996 (date of initial investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 487,901
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (226,076)
Institutional Service Shares (261,825)
Change in net assets resulting from distributions to shareholders (487,901)
SHARE TRANSACTIONS--
Proceeds from sale of shares 165,734,867
Net asset value of shares issued to shareholders in payment of
distributions declared 209,339
Cost of shares redeemed 118,296,500)
Change in net assets resulting from share transactions 47,647,706
Change in net assets 47,647,706
NET ASSETS:
Beginning of period -
End of period $ 47,647,706
</TABLE>
* For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Tennessee Municipal Cash Trust
(the "Fund'). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of
Tennessee consistent with stability of principal and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$47,647,706.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996
<S> <C>
INSTITUTIONAL SHARES SHARES
Shares sold 34,644,791
Shares issued to shareholders in payment of distributions declared 3,455
Shares redeemed (16,824,443)
Net change resulting from Institutional Share transactions 17,823,803
</TABLE>
For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996
INSTITUTIONAL SERVICE SHARES SHARES
<S> <C>
Shares sold 131,090,076
Shares issued to shareholders in payment of distributions declared 205,884
Shares redeemed (101,472,057)
Net change resulting from Institutional Service Share transactions 29,823,903
Net change resulting from share transactions 47,647,706
</TABLE>
For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $142,770,000 and $116,525,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit risk
associated with such factors, at October 31, 1996, 16% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty
assurance agencies. The percentage of investments insured by or supported
(backed) by a letter of credit from any one institution or agency
did not exceed 14% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Tennessee Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Tennessee Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996 and the related statements of
operations and changes in net assets and the financial
highlights (see pages 2 and 14 of the prospectus) for the period from May
22, 1996 to October 31, 1996. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tennessee Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996 and the results of its operations,
changes in its net assets, and the financial highlights for the period, from
May 22, 1996 to October 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
Tennessee 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
Tennessee Municipal
Cash Trust
(A Portfolio of Federated Municipal Cash Trust)
Institutional Shares
Prospectus
A Portfolio of
Federated Municipal Trust,
an Open-End, Management
Investment Company
Prospectus dated December 31, 1996
Federated Investors
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229642
G01682-01 (12/96)
TENNESSEE MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL CASH TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Tennessee Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Tennessee
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Tennessee, or its political subdivisions and financing authorities, but
which provide current income exempt from federal regular income tax and the
personal income taxes imposed by the State of Tennessee consistent with
stability of principal and liquidity.
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. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN
SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December
31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Tennessee Municipal Securities 6
Investment Risks 6
Investment Limitations 7
Hub and Spoke* Option 7
FUND INFORMATION 7
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 9
NET ASSET VALUE 9
HOW TO PURCHASE SHARES 9
Special Purchase Features 10
HOW TO REDEEM SHARES 10
Special Redemption Features 11
ACCOUNT AND SHARE INFORMATION 12
TAX INFORMATION 13
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 14
PERFORMANCE INFORMATION 14
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 15
FINANCIAL STATEMENTS 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26
ADDRESSES 27
</TABLE>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.60%
Shareholder Services Fee 0.25%
Total Operating Expenses(2) 0.60%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.50%.
(2) The Total Operating Expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1997. The Total
Operating Expenses were 0.39% for fiscal year ended October 31, 1996 and
would have been 1.72% absent the voluntary waiver of the management fee
and the voluntary reimbursement of certain other operating expenses.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Institutional Service
Shares of the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period $6 $19 $33 $75
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
TENNESSEE MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants
on page 26.
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(b) 1.48%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39%*
Net investment income 3.26%*
Expense waiver/reimbursement(c) 1.33%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $29,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated September 1, 1989. The Declaration of Trust
permits the Trust to offer separate series of shares representing interests
in separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Trustees has established two classes of shares
known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Service Shares of the Fund, which
are designed primarily for financial institutions acting in an agency
capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term municipal
securities. The Fund may not be a suitable investment for retirement plans
or for non-Tennessee taxpayers because it invests in municipal securities of
that state. A minimum initial investment of $10,000 over 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
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 State of
Tennessee consistent with stability of principal and liquidity. 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 complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days 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 State of Tennessee. (Federal regular
income tax does not include the federal individual alternative minimum tax
or the federal alternative minimum tax for corporations.) Unless indicated
otherwise, the investment policies may be changed by the Board of 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 Tennessee 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 the personal income taxes imposed by the
State of Tennessee ("Tennessee Municipal Securities"). Examples of Tennessee
Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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 Tennessee
Municipal Securities from financial institutions such as commercial and
investment banks, savings 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 Tennessee 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price. The Fund may have more than 25% of its total
assets invested in securities credit-enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
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.
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 AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. 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, together with
other illiquid securities, 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, all of comparable
quality to other securities in which the Fund invests, 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 depository
institutions 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).
Although the Fund is permitted to make taxable, temporary investments, there
is no current intention to do so. However, the interest from certain
Tennessee Municipal Securities is subject to the federal alternative minimum
tax.
TENNESSEE MUNICIPAL SECURITIES
Tennessee 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.
Tennessee 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 Tennessee 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 Tennessee 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 Tennessee 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 Tennessee Municipal Securities acceptable for purchase
by the Fund could become limited.
The Fund may invest in Tennessee 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 Tennessee 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 Tennessee 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. Due to these risk
considerations, the Fund's concentration in Tennessee Municipal Securities
may entail a greater level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market instrument
for a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge assets to
secure such borrowings. These investment limitations cannot be changed
without shareholder approval.
HUB AND SPOKE(R) OPTION
If the Trustees determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its objective by
investing all of its assets in another investment company having the same
investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.
The initial shareholder of the Fund voted to vest authority to use this
investment structure in the sole discretion of the Trustees. No further
approval of shareholders is required. Shareholders will receive at least
30 days notice prior to any such investment.
In making its determination, the Trustees will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although it is expected that the Trustees
will not approve an arrangement that is likely to result in higher costs, no
assurance is given that costs will remain the same or be materially reduced if
this investment structure is implemented.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder
Services Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which the Fund may make payments up to .25% of
the average daily net asset value of the Institutional Shares, computed at
an annual rate, to obtain certain personal services for shareholders and
to maintain shareholder accounts. From time to time and for such periods
as deemed appropriate, the amount stated above may be reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated
Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp.
and Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance may be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished
by the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund at an annual rate which relates to the average aggregate
daily net assets of all funds advised by affiliates of Federated Investors
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting liabilities attributable
to Institutional Service Shares from the value of Fund assets attributable
to Institutional Service Shares, and dividing the remainder by the number of
Institutional Service 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $10,000 or more over a 90-day period. Financial institutions
may impose different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment
by wire or converts payment by check from the financial institution into
federal funds. It is the financial institution's responsibility to transmit
orders promptly. Financial institutions may charge additional fees for their
services.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Tennessee Municipal Cash Trust -- Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the
Fund); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on
your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to: Tennessee Municipal Cash
Trust -- Institutional Service Shares. Orders by mail are considered
received when payment by check is converted into federal funds (normally the
business day after the check is received), and shares begin earning
dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically
withdrawn periodically from the shareholder's checking account at an
Automated Clearing House ("ACH") member and invested in Fund shares.
Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder 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.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by
contacting the shareholder's financial institution. Shares will be redeemed
at the net asset value next determined after Federated Shareholder Services
Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution
or to the shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests before 12:00 noon (Eastern time) 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, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Under
limited circumstances, arrangements may be made with the distributor for
same-day payment of proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that method
of payment has cleared. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
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.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but in
no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company, or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Fund does not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING. Upon request, a checking account will be established to allow
shareholders to redeem their Fund shares. Shareholder accounts will continue
to receive the daily dividend declared on the shares to be redeemed until
the check is presented to UMB Bank, N.A., the bank responsible for
administering the check writing program, for payment. However, checks should
never be made payable or sent to UMB Bank, N.A. or the Fund to redeem
shares, and a check may not be written to close an account.
DEBIT CARD. Upon request, a debit account will be established. This account
allows shareholders to redeem shares by using a debit card. A fee will be
charged to the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at
least $10,000, a systematic withdrawal program may be established whereby
automatic redemptions are made from the account and transferred
electronically to any commercial bank, savings bank, or credit union that is
an ACH member. Shareholders may apply for participation in this program
through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem shares in any account and pay the
proceeds to the shareholder if the account balance falls below a required
minimum value of $10,000 due to shareholder redemptions. Before shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum
requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
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 shareholders of that portfolio or class
are entitled to vote. 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 election of Trustees under
certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
As of November 5, 1996, Berman Family Investment LP owned 37.52% of the
voting securities of the Institutional Service Shares of the Fund, and, Trust
Company of Knoxville, organized in the State of Tennessee, owned 34.10% of
the voting securities of the Institutional Shares of the Fund. Therefore,
they may, for certain purposes, be deemed to control shares of the Fund and
be able to affect the outcome of certain matters presented for a vote of
shareholders.
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, within the limits of its investment
policies, 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
Tennessee. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
TENNESSEE TAXES. Under existing Tennessee law, distributions made by the
Fund will not be subject to Tennessee personal income taxes to the extent
that such distributions qualify as "exempt-interest dividends" under the
Internal Revenue Code, and represent (i) interest on obligations of the
state of Tennessee or its political subdivisions; or (ii) interest on
certain obligations of the United States, or any agency or instrumentality
thereof. To the extent that distributions by the Fund are derived from
distributions on other types of obligations, such distributions will be
subject to Tennessee personal income taxes.
Distributions made by the Fund will be subject to the excise taxes imposed
on corporations.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares
that are sold primarily to financial institutions acting in a fiduciary
capacity. Institutional Shares are sold at net asset value and are sold
pursuant to a Shareholder Services Agreement. Investments in Institutional
Shares are subject to a minimum initial investment of $25,000 within a
90-day period.
Institutional Service Shares and Institutional Shares are subject to certain
of the same expenses. Expense differences, however, between Institutional
Service Shares and Institutional Shares may affect the performance of each
class.
To obtain more information and a prospectus for any other class, investors
may call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of 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 the Fund's tax-exempt yield, assuming a
specific tax rate.
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.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
TENNESSEE MUNICIPAL CASH TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Independent Public Accountants
on page 26.
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1996(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00
TOTAL RETURN(b) 1.59%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.10%*
Net investment income 3.57%*
Expense waiver/reimbursement(c) 1.62%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- 103.0%
TENNESSEE -- 98.8%
$ 2,200,000 Benton County, TN IDB, (Series 1996) Weekly VRDNs (Jones Plastic
and Engineering Corp.)/(National City Bank, Kentucky LOC) $ 2,200,000
1,300,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/(SunTrust
Bank, Atlanta LOC) 1,300,000
1,100,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken Hospital)/(Sumitomo
Bank Ltd., Osaka LOC) 1,100,000
1,000,000 Cocke County, TN IDB Weekly VRDNs (GLI, Inc.)/(Great Lakes
Chemical Corp. GTD) 1,000,000
510,000 Cocke County, TN IDB, (Series 1988) Weekly VRDNs (GLI, Inc.)/
(Great Lakes Chemical Corp. GTD) 510,000
2,000,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs (Tennessee
Bun Company, LLC Project)/(PNC Bank, Ohio, N.A. LOC) 2,000,000
1,550,000 Greenfield, TN IDB, IDRB, (Series 1995) Weekly VRDNs (Plastic
Products Company Project)/(Norwest Bank Minnesota, Minneapolis
LOC) 1,550,000
4,200,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui Ta
Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,200,000
2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty Machine
Co. Project)/(First Union National Bank, Charlotte, N.C. LOC) 2,900,000
1,800,000 Jackson County, TN IDB, (Series B) Daily VRDNs (Esselte AB)/(Bank
of America, Illinois LOC) 1,800,000
1,000,000 Jackson, TN IDB , Solid Waste Facility Bonds (Series 1995) Weekly
VRDNs (Florida Steel Corp.)/(NationsBank, South LOC) 1,000,000
1,325,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health Ventures,
Inc. Project)/(SunTrust Bank, Nashville LOC) 1,325,000
400,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern
Healthcare Systems, Inc.)/(Bank One, Texas, N.A. LOC) 400,000
2,400,000 McMinn County, TN IDB, Industrial Development Bonds, (Series
1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank,
Michigan LOC) 2,400,000
</TABLE>
TENNESSEE MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
TENNESSEE -- CONTINUED
$ 770,000 Memphis, TN, (Series 1996), 5.00% Bonds, 7/1/1997 $ 775,446
1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
(Series 1989 A), 3.65% CP (Vanderbilt University), Mandatory Tender
1/10/1997 1,000,000
2,500,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
Hospital Revenue Bonds, (Series 1992), 3.60% CP (Baptist Hospital,
Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/21/1997 2,500,000
1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA,
Hospital Revenue Bonds, (Series 1992), 3.65% CP (Baptist Hospital,
Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/8/1997 1,000,000
2,300,000 Metropolitan Government Nashville & Davidson County, TN IDB,
Metropolitan Government Revenue Bonds, (Series 1995) Weekly
VRDNs (YMCA Projects)/(Nationsbank of Tennessee LOC) 2,300,000
1,700,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds, (Series 1996) Weekly
VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 1,700,000
300,000 Paris, TN IDB Weekly VRDNs (Plumley - Marugo Limited)/(PNC
Bank, Kentucky LOC) 300,000
700,000 Roane, TN IDB, (Series 1982), 3.50% (Fortafil Fibers, Inc.
Project)/(ABN AMRO Bank N.V., Amsterdam LOC), 11/15/96 700,000
1,000,000 Shelby County, TN Health Education & Housing Facilities Board,
4.05% TOBs (Methodist Health System, Inc.)/(MBIA INS)/(Sanwa
Bank Ltd, Osaka LIQ), Optional Tender 8/1/1997 1,000,000
1,130,000 Shelby County, TN Health Education & Housing Facilities Board,
9.625% Bonds, (Lebonheur Children's Medical Center)/(United States
Treasury PRF), 7/1/1997 (@100) 1,173,395
1,000,000 Shelby County, TN Health Education & Housing Facilities Board,
Multifamily Housing Revenue Bonds, (Series 1988) Weekly VRDNs
(Arbor Lake Project)/(PNC Bank, N.A. LOC) 1,000,000
800,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 800,000
1,000,000 Tennessee Housing Development Agency, (Series 1996-5), 4.00% TOBs,
Mandatory Tender 8/21/1997 1,000,000
</TABLE>
TENNESSEE MUNICIPAL CASH TRUST
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(a)SHORT-TERM MUNICIPALS -- CONTINUED
TENNESSEE -- CONTINUED
$ 1,500,000 Tennessee Housing Development Agency, Homeownership Program
Bonds (Issue 1996-3), 3.85% TOBs, Optional Tender 5/29/1997 $ 1,500,000
2,385,000 Tennessee State School Board Authority, (Series 1996 B), 5.00% Bonds,
5/1/1997 2,398,419
2,000,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler Co.)/
(Wachovia Bank of Georgia NA, Atlanta LOC) 2,000,000
1,500,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper
Container Corporation Project)/(SunTrust Bank, Nashville LOC) 1,500,000
735,000 Williamson County, TN, General Obligation Capital Outlay Notes
(Series 1996), 4.60% Bonds, 10/1/1997 740,432
Total 47,072,692
PUERTO RICO -- 2.1%
1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental
Control Finance Authority, (Series 1994A), 3.80% CP (Inter American
University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory
Tender 1/14/1997 1,000,000
GUAM -- 2.1%
1,000,000 Guam Water System Revenue Bonds, (Series 1989), 6.70% Bonds
(Capital Guaranty Corp. INS), 7/1/1997 1,018,234
TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $ 49,090,926
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 58.8% of
the portfolio as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities, rated SP-1+, SP-1
or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's
Investors Service, Inc., or FIN-1+, FIN-1 and FIN-2 by Fitch Investors
Service, Inc. are all considered rated one of the two highest short-term
rating securities.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows application regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security. At October 31, 1996, the portfolio securities were rated as
follows:
Tier rating percentage based on total market value (unaudited)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
100% 0.00%
</TABLE>
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($47,647,706) at October 31, 1996.
The following acronyms are used throughout this portfolio:
CP -- Commercial Paper
GTD -- Guaranty
HEFA -- Health and Education Facilities Authority
IDB -- Industrial Development Bond
IDRB -- Industrial Development Revenue Bond
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $49,090,926
Cash 169,351
Income receivable 260,093
Total assets 49,520,370
LIABILITIES:
Payable for investments purchased $ 1,743,907
Payable for shares redeemed 29,682
Income distribution payable 61,845
Accrued expenses 37,230
Total liabilities 1,872,664
NET ASSETS for 47,647,706 shares outstanding $47,647,706
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$17,823,803 / 17,823,803 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$29,823,903 / 29,823,903 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
STATEMENT OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1996*
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $525,612
EXPENSES:
Investment advisory fee $ 71,830
Administrative personnel and services fee 71,571
Custodian fees 10,324
Transfer and dividend disbursing agent fees and expenses 6,199
Directors'/Trustees' fees 1,379
Legal fees 200
Portfolio accounting fees 26,665
Shareholder services fee -- Institutional Shares 15,852
Shareholder services fee -- Institutional Service Shares 20,063
Share registration costs 14,119
Printing and postage 5,000
Insurance premiums 3,265
Miscellaneous 686
Total expenses 247,153
Waivers and reimbursements --
Waiver of investment advisory fee $ (71,830)
Waiver of shareholder services fee -- Institutional Shares (15,852)
Reimbursement of other operating expenses (121,760)
Total waivers and reimbursements (209,442)
Net expenses 37,711
Net investment income $487,901
</TABLE>
* For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 487,901
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (226,076)
Institutional Service Shares (261,825)
Change in net assets resulting from distributions to shareholders (487,901)
SHARE TRANSACTIONS--
Proceeds from sale of shares 165,734,867
Net asset value of shares issued to shareholders in payment of
distributions declared 209,339
Cost of shares redeemed (118,296,500)
Change in net assets resulting from share transactions 47,647,706
Change in net assets 47,647,706
NET ASSETS:
Beginning of period --
End of period $ 47,647,706
</TABLE>
* For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
TENNESSEE MUNICIPAL CASH TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Tennessee Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which
shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of
Tennessee consistent with stability of principal and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. At October 31, 1996, capital paid-in aggregated
$47,647,706.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996
INSTITUTIONAL SHARES SHARES
<S> <C>
Shares sold 34,644,791
Shares issued to shareholders in payment of distributions declared 3,455
Shares redeemed (16,824,443)
Net change resulting from Institutional Share transactions 17,823,803
</TABLE>
For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996
INSTITUTIONAL SERVICE SHARES SHARES
<S> <C>
Shares sold 131,090,076
Shares issued to shareholders in payment of distributions declared 205,884
Shares redeemed (101,472,057)
Net change resulting from Institutional Service Share transactions 29,823,903
Net change resulting from share transactions 47,647,706
</TABLE>
For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $142,770,000 and $116,525,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable tax-exempt
mutual fund that invests nationally. In order to reduce the credit risk
associated with such factors, at October 31, 1996, 16% of the securities
in the portfolio of investments are backed by letters of credit or
bond insurance of various financial institutions and financial
guaranty assurance agencies. The percentage of investments insured by or
supported (backed) by a letter of credit from any one institution or agency
did not exceed 14% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(Tennessee Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of
Tennessee Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1996 and the related statements of
operations and changes in net assets, and the financial
highlights (see pages 2 and 15 of the prospectus) for the period from May
22, 1996 to October 31, 1996. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tennessee Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1996 and the results of its operations,
changes in its net assets, and the financial highlights for the period, from
May 22, 1996 to October 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
November 20, 1996
ADDRESSES
Tennessee Municipal Cash Trust
Institutional Service 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 P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
Tennessee Municipal Cash Trust
(A Portfolio of Federated Municipal Cash Trust)
Institutional Service Shares
Prospectus
A Portfolio of
Federated Municipal Trust,
an Open-End, Management
Investment Company
Prospectus dated December 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314229634
G01682-02 (12/96)
TENNESSEE MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Tennessee Municipal Cash Trust (the ``Fund'), a
portfolio of Federated Municipal Trust (the ``Trust') dated December
31, 1996. This Statement is not a prospectus. You may request a copy of
a prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 31, 1996
[logo]
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314229634
Cusip 314229642
G01682-03 (12/96)
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
TENNESSEE INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustees Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 13
Tax-Equivalent Yield 13
Tax-Equivalency Table 14
Total Return 15
Performance Comparisons 15
Economic and Market Information 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 16
Institutional Clients 16
Trust Organizations 16
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 16
APPENDIX 17
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of 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 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.
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 F-1+, F-1, or F-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.''
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 in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
CREDIT ENHANCEMENT
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 Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
TENNESSEE INVESTMENT RISKS
Traditionally divided into three geographic regions, the State's economy
has historically been dominated by agriculture in the west, manufacturing
in the east, and government in the middle region. While trade and services
have replaced agriculture in terms of total output, manufacturing continues
to be the largest single sector of the economy. The decision by Nissan and
Daikin Drivetrain to build automobile production facilities in the state
suggests that manufacturing, with its inherent susceptibility to economic
downturns, will continue to dominate.
The state's attention to educational reform and transportation
infrastructure have led to statewide business development. Total
employment in 1995 grew by 2.9% following a health 4% in 1994. Projections
indicate that employment will continue to grow by 1.7% through 1997.
The constitution of the state requires a balanced budget. This constrain
along with relatively low debt and expenditure per capita ratios has helped
the state maintain its current high quality long term bond rating of AA+ by
Standard and Poor's Rating Agency and Aaa by Moody's Investors Service
Inc.
The Fund's concentration in securities issued by the state and its
political subdivisions provide a greater level of risk than a fund which is
diversified across a number of states and municipal entities. The ability
of the state or its municipalities to meet their obligations will depend on
the availability of tax and other revenues; economic, political, and
demographic conditions within the state; and the underlying fiscal
condition of the state, its counties, and its municipalities.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental (except that no
investment limitation of the Fund shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered
`investment securities'' under the Investment Company Act of 1940, or
assets exempted by the SEC) in an open-end investment company with
substantially the same investment objectives):
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 directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or nonpublicly issued Tennessee municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies and limitations or 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, except
for certain restricted securities which meet the criteria for liquidity as
established by the Board of Trustees.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
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 would be invested in any one
industry or in industrial development bonds or other securities the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval (except that no investment limitation
of the Fund shall prevent the Fund from investing substantially all of its
assets (except for assets which are not considered `investment
securities''under the Investment Company Act of 1940, or assets exempted
by the SEC) in an open-end investment company with substantially the same
investment objectives). 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 certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days notice.
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 FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association 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.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this 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. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments , as well as its ability to consider a security
as having received the requisite short-term ratings by NRSROs, according to
Rule 2a-7. The Fund may change these operational policies to reflect
changes in the laws and regulations without the approval of its
shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee 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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Shares of the Tennessee Municipal
Cash Trust: Union Planters National Bank owned approximately 2,823,229
shares (21.79%); Reep & Co. owned approximately 1,522,249 shares (11.75%);
Senabco owned approximately 983,923 shares (7.59%); Sharp Market & Company
owned approximately 2,261,800 shares (17.46%); Trust Company of Knoxville
owned approximately 4,109,953 shares (31.72%); and David & Co. owned
approximately 980,528 shares (7.57%).
As of December 2, 1996, the following shareholders of record owned 5% or
more of the outstanding Institutional Service Shares of Tennessee Municipal
Cash Trust: Berman Family Investment Corp. owned approximately 11,099,683
shares (33.87%); Union Planters National Bank owned approximately 4,465,767
shares (13.63%); Okeena & Co. owned approximately 3,499,399 shares
(10.68%); Dent, Thompson owned approximately 1,941,326 shares (5.92%);
Derril Reeves owned approximately 2,049,945 shares (6.26%); and BHC
Securities, Inc. owned approximately 2,461,400 shares (7.51%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the
Fund Complex
Thomas G. Bigley++ $3,611 $86,331 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
William J. Copeland $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 14 other investment companies in the
Fund Complex
James E. Dowd $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Gregor F. Meyer $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
John E. Murray, Jr., $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $104,898 for the Trust and
Trustee 54 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended October 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
16 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE 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 period from
May 22, 1996 (date of initial public investment) through October 31, 1996,
the adviser earned $71, 830 all of which was waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. For the period from May 22, 1996 (date of initial public
investment) through October 31, 1996, 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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the period from May 22, 1996 (date of
initial public investment) through October 31, 1996, the Administrators
earned $71,571.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will
benefit by: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending October 31, 1996, payments in the amount of
$15,852 and $20,063 were made pursuant to the Shareholder Services
Agreement for Institutional Shares and Institutional Service Shares,
respectively, of which $15,852 was waived for Institutional Shares.
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.
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.
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, 1996, the yields for
Institutional Shares and Institutional Service Shares were 3.30% and 3.05%,
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, 1996, the effective yield for
Institutional Shares and Institutional Service Shares were 3.35% and 3.10%,
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 45.60% tax rate (the maximum
combined effective federal and state rate for individuals) and assuming
that the income is 100% tax exempt.
For the seven-day period ended October 31, 1996, the tax-equivalent yield
for Institutional Shares and Institutional Service Shares were 6.07% and
5.60%, 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 1996
STATE OF TENNESSEE
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL
AND STATE 21.00% 34.00% 37.00% 42.00% 45.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00% 2.53% 3.03% 3.17% 3.45% 3.68%
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00% 3.80% 4.55% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.56% 6.03% 6.43%
4.00% 5.06% 6.06% 6.35% 6.90% 7.35%
4.50% 5.70% 6.82% 7.14% 7.76% 8.27%
5.00% 6.33% 7.58% 7.94% 8.62% 9.19%
5.50% 6.96% 8.33% 8.73% 9.48% 10.11%
6.00% 7.59% 9.09% 9.52% 10.34% 11.03%
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.
Cumulative total return reflects the total performance over a specific
period of time. For the period from May 22, 1996 (date of initial public
investment) through October 31, 1996, the cumulative total return for
Institutional Shares was 1.59% and for Institutional Service Shares was
1.48%. These total returns are representative of only five months of
activity since the date of initial public investment.
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:
OLIPPER 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.
oIBC/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.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ratings in
several surveys performed by DALBAR, Inc. DALBAR is recognized as the
industry benchmark for service quality measurement. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of
their provisions a variable rate demand feature. The first rating (long-
term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The
definitions for the long-term and the short-term ratings are provided
below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG
or VMIG ratings is to provide investors with a simple system by which the
relative investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. In this case, two ratings are usually assigned, (for
example, AAA/VMIG-1); the first representing an evaluation of the degree of
risk associated with scheduled principal and interest payments, and the
second representing an evaluation of the degree of risk associated with the
demand feature. The VMIG rating can be assigned a 1 or 2 designation using
the same definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to
a range of financial markets and assured sources of alternate
liquidity.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding
debt rated `AA'' by S&P or ``AA'' by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding
debt rated `A'' by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
