1933 Act File No. 33-31259
1940 Act File No. 811-5911
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No. ........................
Post-Effective Amendment No. 48 ...................... x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 48 .................................... x
FEDERATED MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) on _________________
pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a) (i)
x on December 31, 1998, pursuant to paragraph (a) (i). 75 days after filing
pursuant to paragraph (a)(ii) on _________________ pursuant to paragraph
(a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
PROSPECTUS
ALABAMA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the State of Alabama.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from federal regular income tax and the income tax imposed by the State of
Alabama consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular (excluding federal alternative minimum tax
for individuals and corporations) and Alabama State income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Alabama Municipal Cash Trust as of the calendar year-end
for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of .50% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended 1997. The light
gray shaded chart features four distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1994 through 1997, are 2.71%, 3.67%,
3.16%, and 3.30%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND ON A YEARLY BASIS.
THE FUND IS NOT SOLD SUBJECT TO A SALES CHARGE (LOAD). HENCE, THE TOTAL RETURNS
DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE. 7-DAY NET YIELD AS OF
(12/31/97)* WAS 3.59%. THE FUND'S AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.78%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS .98% (QUARTER ENDED JUNE
30, 1995). ITS LOWEST QUARTERLY RETURN WAS
0.56% (QUARTER ENDED MARCH 31, 1994).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT
FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
ALABAMA MUNICIPAL CASH TRUST
FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE ALABAMA MUNICIPAL CASH TRUST..
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)..........None
Redemption Fee
(as a percentage of amount redeemed, if applicable) None
Exchange Fee..............................................None
Maximum Account Fee.......................................None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(as a percentage of average net assets)
Management Fee (1)............................................. 0.50%
Shareholder Services Fee (2)................................... 0.25%
Distribution (12b-1) Fee....................................... None
Other Expenses ................................................ 0.17%
Total Annual Fund Operating Expenses (before waivers).......... 0.92%
Waiver of Fund Expenses (1) (2) .................................0.37%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).... 0.55%
(1) The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund ( after the voluntary waiver) was 0.14% for the year ended October
31, 1998.
(2) The shareholder services fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by
the Fund (after the voluntary reduction) was 0.24% for the year ended October
31, 1998.
EXAMPLE:
The following Example is intended to help you compare the cost of investing in
the Alabama Municipal Cash Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses are BEFORE WAIVERS as shown above and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Alabama Municipal Cash Trust
Expenses assuming no redemption $94 $293 $509 $1,131
..............................
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Alabama. In
addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Alabama state income tax. Temporary investments will be
of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-Alabama taxpayers because it invests in Alabama
tax-exempt securities. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated). In connection with any sale, the Distributor may
from time to time offer certain items of nominal value to any shareholder or
investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
12:00 noon (Eastern time) you will receive a redemption amount based on that
day's NAV without that day's dividend. This amount will be wired to you the same
day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Alabama state income tax to the extent they are derived from
interest on obligations exempt from Alabama state income taxes. Capital gains
and non-exempt dividends are taxable whether paid in cash or reinvested in the
Fund. Redemptions are taxable sales. Please consult your tax preparer regarding
your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
24 Alabama SAI 12/02/98
ALABAMA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229790
3090802A (12/98)
STATEMENT OF ADDITIONAL INFORMATION
ALABAMA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Alabama Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 3142229790
3090802B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax and Alabama state income tax or so that
at least 80% of its net assets is invested in obligations, the interest income
from which is exempt from federal regular and Alabama state income tax.
This policy is fundamental and cannot be changed without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation ("COPS"). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 (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
IBCA, 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 rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
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 Board 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 Board and repurchase agreements
providing for settlement in more than seven days notice.
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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
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 a nationally recognized rating service, 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.
DETERMINING MARKET VALUE OF SECURITIES
The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period. Any Share redemption
payment greater than this amount will also be in cash unless the Fund's Board
determines that payment should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio securities, valued
in the same way as the Fund determines its NAV. The portfolio securities will be
selected in a manner that the Fund's Board deems fair and equitable and, to the
extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: Hubco, Regions
Financial Corp., Birmingham, Alabama, owned approximately 46,388,367 Shares
(24.21%); Lynspen & Co., SouthTrust Bank, N.A., owned approximately 38,180,928
Shares (19.93%); and NBC Securities, Inc., Birmingham, Alabama, owned
approximately 14,284,568 Shares (7.46%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 5, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust.$0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust.$______
Compensation from Federated Fund Complex $111,222
JOHN T. CONROY, JR.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly: President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust.$______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly: Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust.$______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust.$______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust.$______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust.$______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust.$______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust.$______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust.$______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust.$______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust.$______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust.$0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust.$0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust.$0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust.$0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
<PAGE>
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $1,102,5$1,049,210
Earned
Advisory Fee 774,067 692,887
Reduction
Brokerage 0 0
Commissions
Administrative 166,497 158,659
Fee
Shareholder
Services Fee
PAID BY THE FUND FOR SERVICESIf the Fund's expenses are capped at a particular
level, the cap does not include reimbursement to the Fund of any expenses
incurred by shareholders who use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class 30-Day Period 1 Year Since Inception*
Total Return -- % %
Yield % -- --
Effective Yield % -- --
Tax-Equivalent Yield % -- --
* December 3, 1993
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax- equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF ALABAMA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.00% 33.00% 36.00% 41.00% 44.60%
JOINT $1 - $42,351 - $102,301 - $155,951 OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1 - $25,351 - $61,401 - $128,101 - OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
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-1+, AA/A-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. 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 IBCA, 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.
<PAGE>
ADDRESSES
ALABAMA MUNICIPAL CASH TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
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, PA 15222
PROSPECTUS
ARIZONA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking current income exempt from federal regular
income tax and income tax imposed by the State of Arizona.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and Arizona income taxes consistent with stability of
principal and liquidity.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Arizona income taxes.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
ARIZONA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Arizona Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- ---------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Arizona Municipal Cash Trust's Institutional
Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Arizona Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Arizona Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Arizona. In
addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Arizona income taxes. Temporary investments will be of
comparable quality to other securities in which the Fund invests. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
To obtain the Fund's current yield and other information, please call
1-800-341-7400.
HOW IS THE FUND SOLD?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-Arizona taxpayers because it invests in Arizona
tax-exempt securities. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated). In connection with any sale, the Distributor may
from time to time offer certain items of nominal value to any shareholder or
investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
12:00 noon (Eastern time) you will receive a redemption amount based on that
day's NAV without that day's dividend. This amount will be wired to you the same
day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized
or fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund will not issue share certificates.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Arizona income tax to the extent they are derived from
interest on obligations exempt from Arizona income taxes. Capital gains and
non-exempt dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax preparer regarding your
federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Highlights to be filed by Amendment)
<PAGE>
Arizona SAI 11/30/98
ARIZONA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229696
G02372-01 (12/98)
STATEMENT OF ADDITIONAL INFORMATION
ARIZONA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Arizona Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229626
G02372-02 (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund, known as Institutional Service Shares (Shares).
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and Arizona
income taxes. This policy is fundamental and cannot be changed without
shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation ("COPS"). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 (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
IBCA, 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 rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
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 assets, except portfolio securities. This shall not
prevent the Fund from engaging in transactions 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, 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.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; 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; and securities of other investment companies)
if as a result more than 5% of the value of its total assets would be invested
in the securities of that issuer, or if it would own more than 10% of the
outstanding voting securities of that issuer.
Under this limitation, each governmental subdivision, including states and the
District of Columbia, territories, possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalities, or similar
entities, will be considered a separate issuer if its assets and revenues are
separate from those of the governmental body creating it and the security is
backed only by its own assets and revenues. Industrial development bonds backed
only by the assets and revenues of a nongovernmental user are considered to be
issued solely by that user.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Board without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN RESTRICTED AND 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 Board, non-negotiable time deposits and
repurchase agreements providing for settlement in more than seven days after
notice.
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 does not intend to borrow money or pledge securities in excess of 5% of
the value of its net assets 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 a nationally recognized rating service, 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.
DETERMINING MARKET VALUE OF SECURITIES
The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Norwest Investment Services Inc., Minneapolis, Minnesota, owned
approximately 15,780,691 shares (40.52%); Zions First National Bank, Salt Lake
City, Utah, owned approximately 10,380,224 shares (26.65%); Colonial Trust Co.,
Personal Division, Phoenix, Arizona, owned approximately 4,762,599 shares
(12.23%); Dain Rauscher Incorporated, Money Market Operations, Minneapolis,
Minnesota, owned approximately 3,159,135 shares (8.11%); and PJH Prime Account,
Sundown Equipment LLC, Phoenix, Arizona, owned approximately 2,031,251 shares
(5.22%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
Under existing Arizona laws, distributions made by the Fund will not be subject
to Arizona individual or corporate income taxes to the extent that such
distributions qualify as exempt-interest dividends under Internal Revenue Code
and represent (I) interest income received on obligations of the United States
or its territories or possessions; and (ii) interest income received on
obligations of Arizona or its political subdivisions. Conversely, to the extent
that distributions made by the Fund are attributable to other types of
obligations, such distributions will be subject to Arizona income taxes.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 5, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
<PAGE>
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 *
31,
Advisory Fee $
Earned
Advisory Fee
Reduction
Brokerage
Commissions
Administrative
Fee
Shareholder
Services Fee
Institutional
Service Shares
* From the Fund's inception (May 30, 1998) to October 31, 1998.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class
INSTITUTIONAL SERVICE SHARES 30-Day Period Since Inception*
Total Return -- %
Yield % --
Effective Yield % --
Tax-Equivalent Yield % --
* May 30, 1998
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax- equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF ARIZONA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
18.30% 32.80% 35.80% 41.17% 44.77%
SINGLE $1 - $25,351 - $61,401 - $128,101 - OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.84% 2.23% 2.34% 2.55% 2.72%
2.00% 2.45% 2.98% 3.12% 3.40% 3.62%
2.50% 3.06% 3.72% 3.89% 4.25% 4.53%
3.00% 3.67% 4.46% 4.67% 5.10% 5.43%
3.50% 4.28% 5.21% 5.45% 5.95% 6.34%
4.00% 4.90% 5.95% 6.23% 6.80% 7.24%
4.50% 5.51% 6.70% 7.01% 7.65% 8.15%
5.00% 6.12% 7.44% 7.79% 8.50% 9.05%
5.50% 6.73% 8.18% 8.57% 9.35% 9.96%
6.00% 7.34% 8.93% 9.35% 10.20% 10.86%
6.50% 7.96% 9.67% 10.12% 11.05% 11.77%
7.00% 8.57% 10.42% 10.90% 11.90% 12.67%
7.50% 9.18% 11.16% 11.68% 12.75% 13.58%
8.00% 9.79% 11.90% 12.46% 13.60% 14.48%
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.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF ARIZONA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
18.30% 31.90% 35.80% 40.80% 44.77%
SINGLE $1 - $42,351 - $102,301 - $155,951 - OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.84% 2.20% 2.34% 2.53% 2.72%
2.00% 2.45% 2.94% 3.12% 3.38% 3.62%
2.50% 3.06% 3.67% 3.89% 4.22% 4.53%
3.00% 3.67% 4.41% 4.67% 5.07% 5.43%
3.50% 4.28% 5.14% 5.45% 5.91% 6.34%
4.00% 4.90% 5.87% 6.23% 6.76% 7.24%
4.50% 5.51% 6.61% 7.01% 7.60% 8.15%
5.00% 6.12% 7.34% 7.79% 8.45% 9.05%
5.50% 6.73% 8.08% 8.57% 9.29% 9.96%
6.00% 7.34% 8.81% 9.35% 10.14% 10.86%
6.50% 7.96% 9.54% 10.12% 10.98% 11.77%
7.00% 8.57% 10.28% 10.90% 11.82% 12.67%
7.50% 9.18% 11.01% 11.68% 12.67% 13.58%
8.00% 9.79% 11.75% 12.46% 13.51% 14.48%
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.
.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. 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 IBCA, 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.
<PAGE>
ADDRESSES
ARIZONA MUNICIPAL CASH TRUST
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
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, PA 15222
PROSPECTUS
CALIFORNIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and California state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Shares of California Municipal Cash Trust
as of the calendar year-end of one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features one distinct vertical bar, shaded in
charcoal, and visually representing by height the total return percentage for
the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for the calendar year is stated directly
at the top of the respective bar, for the calendar year 1997, is 3.47%.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.70%.
THE FUND'S INSTITUTIONAL SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.78%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 0.90% (QUARTER ENDED JUNE
30, 1997). ITS LOWEST QUARTERLY RETURN WAS 0.79% (QUARTER ENDED MARCH 31, 1997).
*INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
CALIFORNIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the California Municipal Cash Trust's Institutional Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) ( as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER
31, 1998.
Waiver of Fund expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- --------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY WAIVED. THIS VOLUNTARY
WAIVER CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS ______% FOR THE YEAR ENDED OCTOBER 31,
1998. EXAMPLE The following Example is intended to help you compare the cost of
investing in the California Municipal Cash Trust's Institutional Shares with the
cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the California Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the California Municipal Cash
Trust's Institutional Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10 YEARS
YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in California.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and California state income tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV 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 end of regular trading
(normally 1:00 p.m. Pacific time or 4:00 p.m. Eastern time) each day the NYSE is
open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-California taxpayers because it invests in
California tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 10:00 a.m.
Pacific time (1:00 p.m. Eastern time.)
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 12:00 noon Pacific time (3:00
p.m. Eastern time) on the same day. You will become the owner of Shares and
receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 1:00 p.m. Pacific time or 4:00 p.m.
Eastern time). The redemption amount you will receive is based upon the NAV on
the day the Fund receives the order from your investment professional.
Redemption requests received by the Fund before 9:00 a.m. Pacific time (12:00
noon Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 9:00 a.m. Pacific time (12:00 noon Eastern time) you will
receive a redemption amount based on that day's NAV without that day's dividend.
This amount will be wired to you the same day.
If you call after 9:00 a.m. Pacific time (12:00 noon Eastern time) you will
receive a redemption amount based on that day's NAV and will receive that day's
dividend. This amount will be wired to you the following business day.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from California state personal income tax to the extent they are
derived from interest on obligations exempt from California personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
CALIFORNIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229675
G00300-01-IS (12/98)
PROSPECTUS
CALIFORNIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and California state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Service Shares of California Municipal Cash
Trust as of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended 1997. The light gray shaded chart features one distinct vertical bar,
shaded in charcoal, and visually representing by height the total return
percentage for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Service Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar year
1997, is 3.21%.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
CLASS ON A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SERVICE SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE
(LOAD). HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET
VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.45%.
THE FUND'S INSTITUTIONAL SERVICE SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE
MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.72%. WITHIN THE PERIOD
SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 0.84% (QUARTER ENDED
JUNE 30, 1997). ITS LOWEST QUARTERLY RETURN WAS 0.73% (QUARTER ENDED MARCH 31,
1997). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
CALIFORNIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the California Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original None
purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) ( as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER
31, 1998.
Waiver of Fund expenses1
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- ------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the California Municipal Cash Trust's Institutional Service Shares with the cost
of investing in other mutual funds.
The Example assumes that you invest $10,000 in the California Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the California Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in California.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and California state income tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV 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 end of regular trading
(normally 1:00 p.m. Pacific time or 4:00 p.m. Eastern time) each day the NYSE is
open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-California taxpayers because it invests in
California tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 10:00 a.m.
Pacific time (1:00 p.m. Eastern time.)
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 12:00 noon Pacific time (3:00
p.m. Eastern time) on the same day. You will become the owner of Shares and
receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 1:00 p.m. Pacific time or 4:00 p.m.
Eastern time). The redemption amount you will receive is based upon the NAV on
the day the Fund receives the order from your investment professional.
Redemption requests received by the Fund before 9:00 a.m. Pacific time (12:00
noon Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
9:00 a.m. Pacific time (12:00 noon Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 9:00 a.m. Pacific time (12:00 noon Eastern time) you will
receive a redemption amount based on that day's NAV and will receive that day's
dividend. This amount will be wired to you the following business day. Under
limited circumstances, arrangements may be made with the Distributor for
same-day payment of redemption proceeds, without that day's dividend, for
redemption requests received before 11:00 a.m. Pacific time (2:00 p.m. Eastern
time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from California state personal income tax to the extent they are
derived from interest on obligations exempt from California personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
3 CA SAI
CALIFORNIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229766
G00329-01-SS (12/98)
STATEMENT OF ADDITIONAL INFORMATION
CALIFORNIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for California Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Massachusetts Partnership Law
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229675
CUSIP 314229766
G00329-02 (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to all of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and California
state income tax. This policy is fundamental and cannot be changed without
shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 ("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 IBCA, 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 rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance."
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 tax-exempt 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 Board 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 Board and repurchase agreements
providing for settlement in more than seven days after notice.
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
prospectuses 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 nationally recognized rating services,
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. DETERMINING MARKET VALUE OF SECURITIES The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the financial intermediary with regard to the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
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.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 6, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares: Repub
& Co., Imperial Trust Company, Los Angeles, California, owned approximately
20,139,300 shares (48.30%); Santa Monica Bank, Santa Monica, California, owned
approximately 5,861,336 shares (14.06%); Union Safe Deposit Bank, Stockton,
California, owned approximately 5,315,280 shares (12.75%); Bank of Stockton,
Stockton, California, owned approximately 4,068,922 shares (9.76%); and Palsan
Company, Sumitomo Bank of California, San Francisco, California, owned
approximately 2,789,063 shares (6.69%).
As of November 6, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Piper Jaffray Inc., for the exclusive benefit of its customers,
Minneapolis, Minnesota, owned approximately 56,415,496 shares (15.52%); Capital
Network Services, Inc., San Francisco, California, owned approximately
30,186,881 shares (8.30%); UBS AG, Omnibus Reinvest Account, New York, New York,
owned approximately 26,357,356 shares (7.25%); and NAIDOT & Co., Bessemer Trust
Company, Woodbridge, New Jersey, owned approximately 21,770,400 shares (5.99%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 6, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON*
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 31, 1998 1997 1996
Advisory Fee $1,047,53$501,955
Earned
Advisory Fee $1,026,07$501,955
Reduction
Brokerage $0 $0
Commissions
Administrative $167,256 $145,082
Fee
Shareholder
Services Fee
Institutional $74,743
Shares
Institutional $449,026
Service Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing fees and shareholder services fees, which are borne only by
the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and since inception periods
ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class 30-Day Period 1 Year 5 Years Since Inception*
INSTITUTIONAL SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* March 4, 1996
Share Class 30-Day Period 1 Year 5 Years Since Inception*
INSTITUTIONAL SERVICE SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* March 15, 1989
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 37.30% 40.30% 45.30% 48.90%
SINGLE $1 - $25,351 - $61,401 - $128,101 - OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
21.00% 37.30% 40.30% 45.30% 48.90%
JOINT $1 - $42,351 - $102,301 - $155,951 - OVER
RETURN 42,350 102,300 155,950 278,450 278,450
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.90% 2.39% 2.51% 2.74% 2.94%
2.00% 2.53% 3.19% 3.35% 3.66% 3.91%
2.50% 3.16% 3.99% 4.19% 4.57% 4.89%
3.00% 3.80% 4.78% 5.03% 5.48% 5.87%
3.50% 4.43% 5.58% 5.86% 6.40% 6.85%
4.00% 5.06% 6.38% 6.70% 7.31% 7.83%
4.50% 5.70% 7.18% 7.54% 8.23% 8.81%
5.00% 6.33% 7.97% 8.38% 9.14% 9.78%
5.50% 6.96% 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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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 SERVICE, L.P. 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.
<PAGE>
ADDRESSES
CALIFORNIA MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PROSPECTUS
FLORIDA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
CASH II SHARES
A money market mutual fund seeking current income exempt from federal regular
income tax and the Florida intangibles tax.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
2
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Florida
consistent with stability of principal and liquidity.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and the personal income taxes
imposed by the State of Florida.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash II Shares of Florida Municipal Cash Trust as of the
calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of ____% up to ____%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash II Shares' start of business through the calendar year ended 1997.
The light gray shaded chart features two distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Cash II Shares for each calendar year is stated directly at
the top of each respective bar, for the calendar years 1996 through 1997 the
total returns are 2.95% and 2.97%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S CASH II CLASS ON A YEARLY
BASIS.
THE FUND'S CASH II SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD). HENCE,
THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE. 7-DAY NET
YIELD AS OF (12/31/97)* WAS 3.19%. THE FUND'S CASH II SHARES AVERAGE ANNUAL
TOTAL RETURN AS OF THE MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS
2.86%. WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN
WAS 0.77% (QUARTER ENDED DECEMBER 30, 1997). ITS LOWEST QUARTERLY RETURN WAS
0.66% (QUARTER ENDED MARCH 31, 1997).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400.
WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT FUTURE PERFORMANCE, THIS
INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE INFORMATION SO THAT YOU CAN
ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE BALANCED BY ITS POTENTIAL
REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FLORIDA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Florida Municipal Cash Trust's Cash II Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases
as a percentage of offering price None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee (1). 0.40%
Shareholder Services Fee 0.25%
Distribution (12b-1) Fee (2) 0.25%
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS)
ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH
THE NET EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER
31, 1998.
Waiver of Fund expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE DISTRIBUTION (12B-1) FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE DISTRIBUTION (12B-1) FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Florida Municipal Cash Trust's Cash II Shares with
the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Florida Municipal Cash
Trust's Cash II Shares for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Florida Municipal Cash Trust's
Cash II Shares' operating expenses are BEFORE WAIVERS as estimated above and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. Fixed
Income securities pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating services or be of comparable quality to securities having such
ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Florida. In
addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the Florida intangibles tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to higher or lower minimum investment requirements
than those imposed by the Fund. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Cash II Shares each
representing interests in a single portfolio of securities.
This prospectus relates only to Cash II Shares. Each share class has different
expenses, which affect their performance. Contact your investment professional
or call 1-800-341-7400 for more information concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment professionals. The
Fund may not be a suitable investment for retirement plans or for non-Florida
taxpayers because it invests in Florida tax-exempt securities. The Distributor
and its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated). In
connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. You will receive
a redemption amount based on the NAV on the day the Fund receives your written
request in proper form. Dividends are paid up to and including the day that a
redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from the Florida intangibles tax to the extent they are derived
from interest on obligations exempt from the Florida intangibles tax. Capital
gains and non-exempt dividends are taxable whether paid in cash or reinvested in
the Fund. Redemptions are taxable sales. Please consult your tax preparer
regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
FLORIDA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
CASH II SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229683
G00537-02-CII (12/98)
PROSPECTUS
FLORIDA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and theFLorida intangibles tax.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS, AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Florida
consistent with stability of principal and liquidity.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Florida dividend and interest
income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Florida Municipal Cash Trust as
of the calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of ____% up to____%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features three distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1995
through 1997, the total returns are 3.59%, 3.13%, and 3.23%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.45%.
THE FUND'S INSTITUTIONAL SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 3.13%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 0.93% (QUARTER ENDED JUNE
30, 1995). ITS LOWEST QUARTERLY RETURN WAS 0.72% (QUARTER ENDED MARCH 31, 1997).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400. While past performance does not necessarily predict future
performance, this information provides you with historical performance
information so that you can analyze whether the Fund's investment risks are
balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FLORIDA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Florida Municipal Cash Trust's Institutional Shares.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee1 0.40%
Shareholder Services Fee 0.25%
Distribution (12b-1) Fee2 0.25%
Other Expenses 0.12%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) 0.77% Although not
contractually obligated to do so, the adviser waived and distributor reimbursed
certain amounts. These are shown below along with the net expenses the Fund
ACTUALLY paid for the fiscal year ended October 31, 1998. Waiver of Fund
expenses 1, 2
0.19%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.58%
</TABLE>
- --------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE DISTRIBUTION (12B-1) FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE DISTRIBUTION (12B-1) FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Florida Municipal Cash Trust's Institutional Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Florida Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Florida Municipal Cash Trust's
Institutional Shares' operating expenses are BEFORE WAIVERS as estimated above
and remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption $79 $246 $428 $954
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment. Fixed
Income securities pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Florida. In
addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the Florida intangibles tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Cash II Shares each
representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Florida taxpayers because it invests in Florida
tax-exempt securities. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated). In connection with any sale, the Distributor may
from time to time offer certain items of nominal value to any shareholder or
investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
<PAGE>
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from the Florida intangibles tax to the extent they are derived
from interest on obligations exempt from the Florida intangibles tax. Capital
gains and non-exempt dividends are taxable whether paid in cash or reinvested in
the Fund. Redemptions are taxable sales. Please consult your tax preparer
regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
FL_sai 17
FLORIDA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229758
005392 (12/98)
STATEMENT OF ADDITIONAL INFORMATION
FLORIDA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
CASH II SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Florida Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229758
CUSIP 314229683
G00537-01 (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Cash II Shares (Shares). This SAI
relates to both of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and the
Florida intangibles tax. This policy is fundamental and cannot be changed
without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT 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 rating service
or be of comparable quality to securities having such ratings. A rating
service'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 (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 IBCA, 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 rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
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 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 nationally recognized rating services, 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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 Board 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares: PCA
Family Health Plans, Louisville, Kentucky, owned approximately 8,022,480 Shares
(5.12%); Lynspen & Co., Birmingham, Alabama, owned approximately 9,067,780
Shares (5.79%); MIFLA & Co., Milwaukee, Wisconsin, owned approximately
10,040,150 Shares (6.41%); Saxon & Co., Lester, Pennsylvania, owned
approximately 14,154,740 Shares (9.04%); and Calhoun & Co., Detroit, Michigan,
owned approximately 23,894,175 Shares (15.26%).
As of November 5, 1998, the following shareholder owned of record, beneficially,
or both, 5% or more of the outstanding Cash II Shares: Trustman, Atlanta,
Georgia, owned approximately 68,263,993 Shares (92.21%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE TAXES
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 5, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $2,318,6$1,558,498
Earned
Advisory Fee 1,092,531,071,607
Reduction
Brokerage 0 0
Commissions
Administrative 437,669 294,886
Fee
12b-1 Fee
Institutional 0
Shares
Cash II Shares 217,783
Shareholder
Services Fee
Institutional 1,231,376
Shares
Cash Series 217,783
Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
<PAGE>
Total returns given for the one-year, five-years and since inception periods
ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
<PAGE>
Share Class 30-Day Period 1 Year 5 Years Since Inception*
INSTITUTIONAL SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* September 21, 1994
Share Class 30-Day Period 1 Year 5 Years Since Inception*
CASH II SHARES
Total Return -- % -- %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* November 27, 1995
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
State of Florida
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1 $42,351 $102,301 $155,951 OVER
RETURN 42,350 102,300 155,950 278,450 278,450
SINGLE $1 $25,351 $61,401 $128,101 OVER
RETURN 25,350 61,400 128,100 278,450 278,450
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
<PAGE>
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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 the demand
characteristics. Several examples are AAA/A-l+, AA/A-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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 IBCA, 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.
<PAGE>
ADDRESSES
FLORIDA MUNICIPAL CASH TRUST
Institutional Shares
Cash II Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PROSPECTUS
GEORGIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the State of Georgia.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from federal regular income tax and the income tax imposed by the State of
Georgia consistent with stability of principal and liquidity.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Georgia state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Georgia Municipal Cash Trust as of the calendar year-end
for each of two years.
The `y' axis reflects the "% Total Return" beginning with "3.15%" and increasing
in increments of 0.05% up to 3.45%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended 1997. The light
gray shaded chart features two distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1996 through 1997, are 3.27%, and
3.42%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND ON A YEARLY BASIS.
THE FUND IS NOT SOLD SUBJECT TO A SALES CHARGE (LOAD). HENCE, THE TOTAL RETURNS
DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE. 7-DAY NET YIELD AS OF
(12/31/97)* WAS 3.69%. THE FUND'S AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.80%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS .89% (QUARTER ENDED JUNE
30, 1997). ITS LOWEST QUARTERLY RETURN WAS
0.77% (QUARTER ENDED MARCH 31, 1997).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT
FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
GEORGIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Georgia Municipal Cash Trust.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
</TABLE>
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- -------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in Georgia Municipal Cash Trust with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in Georgia Municipal Cash Trust for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that Georgia Municipal Cash Trust's operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Georgia. In
addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Georgia state income tax. Temporary investments will be
of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-Georgia taxpayers because it invests in Georgia
municipal securities. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated). In connection with any sale, the Distributor may
from time to time offer certain items of nominal value to any shareholder or
investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
12:00 noon (Eastern time) you will receive a redemption amount based on that
day's NAV without that day's dividend. This amount will be wired to you the same
day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Georgia state income tax to the extent they are derived from
interest on obligations exempt from Georgia state income taxes. Capital gains
and non-exempt dividends are taxable whether paid in cash or reinvested in the
Fund. Redemptions are taxable sales. Please consult your tax preparer regarding
your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Highlights to be filed by Amendment)
<PAGE>
GEORGIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229691
G01204-01 (12/98)
<PAGE>
PROSPECTUS
MARYLAND MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Maryland.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
State of Maryland and Maryland municipalities consistent with stability of
principal and liquidity.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Maryland state and local tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Maryland Municipal Cash Trust as of the calendar
year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "2.85%" and increasing
in increments of .05% up to 3.40%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended 1997. The light
gray shaded chart features three distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1995 through 1997, are 3.38%, 3.05%,
and 3.13%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND ON A YEARLY BASIS.
THE FUND IS NOT SOLD SUBJECT TO A SALES CHARGE (LOAD). HENCE, THE TOTAL RETURNS
DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE. 7-DAY NET YIELD AS OF
(12/31/97)* WAS 3.46%. THE FUND'S AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.70%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS .89% (QUARTER ENDED JUNE
30, 1995). ITS LOWEST QUARTERLY RETURN WAS
0.72% (QUARTER ENDED MARCH 31, 1997).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT
FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
MARYLAND MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Maryland Municipal Cash Trust.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- -----------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in Maryland Municipal Cash Trust with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in Maryland Municipal Cash Trust for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that Maryland Municipal Cash Trust's operating expenses are BEFORE
WAIVERS as estimated above and remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Maryland.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Maryland state and local income tax. Temporary
investments will be of comparable quality to other securities in which the Fund
invests. This may cause the Fund to give up greater investment returns to
maintain the safety of principal. This also may cause the Fund to receive and
distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-Maryland taxpayers because it invests in Maryland
tax-exempt securities. The Distributor and its affiliates may pay out of their
assets amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated). In connection with any sale, the Distributor may
from time to time offer certain items of nominal value to any shareholder or
investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
12:00 noon (Eastern time) you will receive a redemption amount based on that
day's NAV without that day's dividend. This amount will be wired to you the same
day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Maryland state and local income tax to the extent they are
derived from interest on obligations exempt from Maryland state and local income
tax. Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
Maryland SAI 11/25/98
MARYLAND MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229774
G00105-01-A (12/98)
STATEMENT OF ADDITIONAL INFORMATION
MARYLAND MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Maryland Municipal Cash Trust dated
December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229774
G00105-02-B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax (excluding federal alternative minimum
tax for individuals and corporations) and Maryland state and local income tax.
This policy is fundamental and cannot be changed without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation ("COPS"). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes arrangements
where securities or other liquid assets secure payment of a fixed income
security. Following a default, these assets may be sold and the proceeds paid to
a security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security. INVESTMENT
RISKS There are many factors which may effect an investment in the Fund. The
principal risks of investing in a municipal money market fund are described in
the Fund's prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 (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
IBCA, 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 rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
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 Board 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 Board and repurchase agreements
providing for settlement in more than seven days notice.
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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
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 a nationally recognized rating service, 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.
DETERMINING MARKET VALUE OF SECURITIES
The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period. Any Share redemption
payment greater than this amount will also be in cash unless the Fund's Board
determines that payment should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio securities, valued
in the same way as the Fund determines its NAV. The portfolio securities will be
selected in a manner that the Fund's Board deems fair and equitable and, to the
extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: First Union Capital
Markets Corp., Charlotte, North Carolina, owned approximately 23,800,885 Shares
(36.21%); Arthur L. Smith, Baltimore, Maryland, owned approximately 3,613,617
Shares (5.50%); and Farmers & Co., Frederick, Maryland, owned approximately
3,304,054 Shares (5.03%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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
United 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
<PAGE>
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $229,262$237,399
Earned
Advisory Fee 229,262 237,399
Reduction
Brokerage 0 0
Commissions
Administrative 125,000 125,000
Fee
Shareholder
Services Fee
If the Fund's UND FOR SERVICES expenses are capped at a particular level, the
cap does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities.
HOW DOES THE
FUND MEASURE
PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless
otherwise
stated, any
quoted Share performance reflects the effect of non-recurring charges, such as
maximum sales charges, which, if excluded, would increase the total return and
yield. The performance of Shares depends upon such variables as: portfolio
quality; average portfolio maturity; type and value of portfolio securities;
changes in interest rates; changes or differences in the Fund's or any class of
Shares' expenses; and various other factors.
Share
performance
fluctuates on a daily basis largely because net earnings and offering price per
Share fluctuate daily. Both net earnings and offering price per Share are
factors in the computation of yield and total return.
AVERAGE ANNUAL
TOTAL RETURNS
AND YIELD Total returns given for the one-, five- and since inception periods
ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class
30-Day Period
1 Year
Since Inception*
Total Return
--
%
%
Yield
%
- --
- --
Effective Yield
%
- --
- --
Tax-Equivalent
Yield
%
- --
- --
* May 9, 1994.
TOTAL RETURN Total return represents the change (expressed as a percentage) in
the value of Shares over a specific period of time, and includes the investment
of income and capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a thirty-day period; by (ii) the
maximum offering price per Share on the last day of the period. This number is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. 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 tax- equivalent yield of Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that Shares
would have had to earn to equal the actual yield, assuming a specific tax rate.
The yield, effective yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX
EQUIVALENCY
TABLE Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MARYLAND
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE: 22.00% 35.00% 38.75% 43.75% 47.35%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.92% 2.31% 2.45% 2.67% 2.85%
2.00% 2.56% 3.08% 3.27% 3.56% 3.80%
2.50% 3.21% 3.85% 4.08% 4.44% 4.75%
3.00% 3.85% 4.62% 4.90% 5.33% 5.70%
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% 8.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. 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 IBCA, 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.
<PAGE>
ADDRESSES
MARYLAND MUNICIPAL CASH TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
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, PA 15222
PROSPECTUS
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Michigan.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS, AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Michigan dividend and interest
income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Michigan Municipal Cash Trust as
of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features one distinct vertical bar, shaded in
charcoal, and visually representing by height the total return percentage for
the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for the calendar year 1997, stated
directly at the top of the vertical bar, is 3.47%.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)1 WAS 3.75%. THE FUND'S INSTITUTIONAL SHARES
AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST RECENT CALENDAR QUARTER OF SEPTEMBER
30, 1998 WAS 0.80%. WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S HIGHEST
QUARTERLY RETURN WAS0.90% (QUARTER ENDED JUNE 30, 1997). ITS LOWEST QUARTERLY
RETURN WAS 0.78%
(QUARTER ENDED MARCH 31, 1997).
1 INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
MICHIGAN MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Michigan Municipal Cash Trust's Institutional Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) Although not
contractually obligated to do so, the adviser waived and distributor reimbursed
certain amounts. These are shown below along with the net expenses the Fund
ACTUALLY paid for the fiscal year ended October 31, 1998. Waiver of Fund
expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- --------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Michigan Municipal Cash Trust's Institutional
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Michigan Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Michigan Municipal Cash
Trust's Institutional Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax- exempt
securities are generally differentiated by their source of repayment. Fixed
Income securities pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Tax-exempt securities that require the issuer or a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The
securities also bear interest at a variable rate intended to cause the
securities to trade at their face value. The Fund treats demand instruments as
short-term securities, even though their stated maturity may extend beyond
thirteen months.
MUNICIPAL NOTES
Short-term tax-exempt securities. Many municipalities issue such notes to fund
their current operations prior collecting taxes or other municipal revenues.
Municipalities may also issue notes to fund capital projects prior to issuing
long-term bonds. The issuers typically repay the notes at the end of their
fiscal year, either with taxes, other revenues or proceeds from newly issued
notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Michigan.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income tax imposed by the State of Michigan.
Temporary investments will be of comparable quality to other securities in which
the Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to receive and
distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Michigan taxpayers because it invests in
Michigan tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
<PAGE>
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Michigan state personal income tax to the extent they are
derived from interest on obligations exempt from Michigan personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229667
G01212-04-IS (12/98)
PROSPECTUS
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Michigan.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Michigan dividend and interest
income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Michigan Municipal Cash
Trust as of the calendar year-end for two years.
The `y' axis reflects the "% Total Return" beginning with "3.10%" and increasing
in increments of 0.02% up to 3.32%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended 1997. The light gray shaded chart features two distinct vertical bars,
each shaded in charcoal, and each visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Service Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1996 and 1997, the total returns are 3.18% and 3.31%,
respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
CLASS ON A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SERVICE SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE
(LOAD). HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET
VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.59.
THE FUND'S INSTITUTIONAL SERVICE SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE
MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.76%. WITHIN THE PERIOD
SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 0.86% (QUARTER ENDED
JUNE 30, 1997). ITS LOWEST QUARTERLY RETURN WAS 0.75% (QUARTERS ENDED MARCH 31,
1996 AND MARCH 31, 1997). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT
7-DAY NET YIELD BY CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT
NECESSARILY PREDICT FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH
HISTORICAL PERFORMANCE INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S
INVESTMENT RISKS ARE BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
MICHIGAN MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Michigan Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- -----------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Michigan Municipal Cash Trust's Institutional
Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Michigan Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Michigan Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Michigan.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income tax imposed by the State of Michigan.
Temporary investments will be of comparable quality to other securities in which
the Fund invests. This may cause the Fund to give up greater investment returns
to maintain the safety of principal. This also may cause the Fund to receive and
distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Michigan taxpayers because it invests in
Michigan tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Michigan state personal income tax to the extent they are
derived from interest on obligations exempt from Michigan personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229725
G01212-01 (12/98)
STATEMENT OF ADDITIONAL INFORMATION
MICHIGAN MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Michigan Municipal Cash Trust dated
December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229667
CUSIP 314229725
G01212-02 (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and the
personal income tax imposed by the State of Michigan. This policy is fundamental
and cannot be changed without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings. A rating
service'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 (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 IBCA, 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 rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
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 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 Board 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 Board and repurchase agreements
providing for settlement in more than seven days after notice.
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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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 Board 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Huntington Tax-Free Bond Fund, Columbus, Ohio, owned approximately 1,381,740
Shares (5.99%); Sunatco Partnership, as nominee for SNB as trustee, custodian or
agent, Hancock, Michigan, owned approximately 4,362,563 Shares (18.92%);
National City Bank, Cleveland, Ohio, owned approximately 4,747,062 Shares
(20.59%); and First Mar & Co., MFC First National Bank, Marquette, Michigan,
owned approximately 10,145,279 Shares (44.00%).
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: VAR & Co., US Bank, N.A., St. Paul, Minnesota, owned approximately
33,943,527 Shares (17.92%) and McDonald & Co. Securities, Inc. (for the
exclusive benefit of customers), Cincinnati, Ohio, owned approximately
52,212,420 Shares (27.56%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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 of 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 Fund are exempt
from federal regular income taxes, such dividends also will be exempt from
Michigan municipal income taxes.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of October 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $655,534$337,325
Earned
Advisory Fee 542,531 337,325
Reduction
Brokerage 0 0
Commissions
Administrative 155,000 145,082
Fee
Shareholder
Services Fee
Institutional 33,389
Shares
Institutional 294,391
Service Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
<PAGE>
Total returns given for the one-year and since inception periods ended OCTOBER
31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
<PAGE>
Share Class 30-Day Period 1 Year Since Inception*
INSTITUTIONAL SHARES
Total Return -- % %
Yield % -- --
Effective Yield % -- --
Tax-Equivalent Yield % -- --
* May 2, 1996
Share Class 30-Day Period 1 Year Since Inception*
INSTITUTIONAL SERVICE SHARES
Total Return -- % %
Yield % -- --
Effective Yield % -- --
Tax-Equivalent Yield % -- --
* June 20, 1995
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MICHIGAN
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.40% 32.40% 35.40% 40.40% 44.00%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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-1+, 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.
<PAGE>
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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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.
<PAGE>
FITCH IBCA, 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.
<PAGE>
ADDRESSES
MICHIGAN MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PROSPECTUS
MINNESOTA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
CASH SERIES SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Minnesota.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Minnesota consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Minnesota dividend and
interest income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash Series Shares of Minnesota Municipal Cash Trust as
of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 4.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash Series Shares' start of business through the calendar year ended
1997. The light gray shaded chart features seven distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Cash Series Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1991
through 1997, the total returns are 4.24%, 2.51%, 1.98%, 2.37%, 3.45%, 2.88%,
and 3.01%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S CASH SERIES SHARES CLASS ON A
YEARLY BASIS.
THE FUND'S CASH SERIES SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.30%.
THE FUND'S CASH SERIES SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST RECENT
CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.70%. WITHIN THE PERIOD SHOWN IN THE
CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 1.04% (QUARTER ENDED JUNE 30,
1991). ITS LOWEST QUARTERLY RETURN WAS 0.46% (QUARTER ENDED MARCH 31, 1994). *
INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT FUTURE
PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
MINNESOTA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Minnesota Municipal Cash Trust's Cash Series Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fee 1 0.40%
Shareholder Services Fee 0.25%
Distribution (12b-1) Fee 2 0.50%
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
Waiver of Fund expenses (1)(2)
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE DISTRIBUTION (12B-1) FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE DISTRIBUTION (12B-1) FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Minnesota Municipal Cash Trust's Cash Series Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Minnesota Municipal Cash
Trust's Cash Series Shares for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Minnesota Municipal Cash
Trust's Cash Series Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Minnesota.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income taxes imposed by the State of
Minnesota. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may cause the
Fund to receive and distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to higher or lower minimum investment requirements
than those imposed by the Fund. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Cash Series Shares
each representing interests in a single portfolio of securities.
This prospectus relates only to Cash Series Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment professionals. The
Fund may not be a suitable investment for retirement plans or for non-Minnesota
taxpayers because it invests in Minnesota tax-exempt securities. The Distributor
and its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated). In
connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m.
(Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. You will receive
a redemption amount based on the NAV on the day the Fund receives your written
request in proper form. Dividends are paid up to and including the day that a
redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITALGAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Minnesota state personal income tax to the extent they are
derived from interest on obligations exempt from Minnesota personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
<PAGE>
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
MINNESOTA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
CASH SERIES SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229873
0082715A-CSS (12/98)
PROSPECTUS
MINNESOTA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Minnesota.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS, AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Minnesota consistent with stability of principal and liquidity.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Minnesota dividend and
interest income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Minnesota Municipal Cash Trust
as of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 5.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features seven distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1991
through 1997, the total returns are 4.57%, 2.92%, 2.39%, 2.78%, 3.87%, 3.40%,
and 3.53%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97* WAS 3.80%.
THE FUND'S INSTITUTIONAL SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.83%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 1.13% (QUARTER ENDED
SEPTEMBER 30, 1991). ITS LOWEST QUARTERLY RETURN WAS 0.56% (QUARTER ENDED MARCH
31, 1994). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD
BY CALLING 1-800-341-7400. While past performance does not necessarily predict
future performance, this information provides you with historical performance
information so that you can analyze whether the Fund's investment risks are
balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
MINNESOTA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Minnesota Municipal Cash Trust's Institutional Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee1 0.40%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) Although not
contractually obligated to do so, the adviser waived and distributor reimbursed
certain amounts. These are shown below along with the net expenses the Fund
ACTUALLY paid for the fiscal year ended October 31, 1998. Waiver of Fund
expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- -----------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Minnesota Municipal Cash Trust's Institutional Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Minnesota Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Minnesota Municipal Cash
Trust's Institutional Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment. Fixed
Income securities pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Tax exempt securities that require the issuer or a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The
securities also bear interest at a variable rate intended to cause the
securities to trade at their face value. The Fund treats demand instruments as
short-term securities, even though their stated maturity may extend beyond
thirteen months.
MUNICIPAL NOTES
Short-term tax exempt securities. Many municipalities issue such notes to fund
their current operations prior collecting taxes or other municipal revenues.
Municipalities may also issue notes to fund capital projects prior to issuing
long-term bonds. The issuers typically repay the notes at the end of their
fiscal year, either with taxes, other revenues or proceeds from newly issued
notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Minnesota.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income taxes imposed by the State of
Minnesota. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may cause the
Fund to receive and distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Minnesota taxpayers because it invests in
Minnesota tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
<PAGE>
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Minnesota state personal income tax to the extent they are
derived from interest on obligations exempt from Minnesota personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
MN 107
MINNESOTA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229402
0082715A-IS (12/98)
STATEMENT OF ADDITIONAL INFORMATION
MINNESOTA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
CASH SERIES SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Minnesota Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229402
CUSIP 314229873
0082715B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Cash Series Shares (Shares). This SAI
relates to both of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and Minnesota
regular personal income tax. This policy is fundamental and cannot be changed
without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT 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 rating service
or be of comparable quality to securities having such ratings. A rating
service'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 (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 IBCA, 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 rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
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
non-publicly issued Minnesota tax-exempt 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
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.
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 Board.
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 (including instruments issued by a U.S. branch of a domestic bank or
savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of Investment), securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Board 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 Board and repurchase agreements
providing for settlement in more than seven days after notice.
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 nationally recognized rating services, 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
RULE 12B-1 PLAN (CASH SERIES SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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 Board 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Firmad & Co., Milwaukee, Wisconsin, owned approximately 18,152,933 shares
(5.44%); Resource Bank & Trust Co., Minneapolis, Minnesota, owned approximately
59,492,300 shares (17.84%) and VAR & Co., St. Paul, Minnesota, owned
approximately 202,320,980 shares (60.66%).
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Cash Series Shares:
Primevest Financial Services, Inc., St. Cloud, Minnesota, owned approximately
12,683,113 shares (5.85%); MJK Clearing Omnibus Account, Minneapolis, Minnesota,
owned approximately 22,476,522 shares (10.37%); Dain Rauscher Incorporated,
Minneapolis, Minnesota, owned approximately 26,302,118 shares (12.14%); Piper
Jaffray, Inc. (special custody account for the exclusive benefit of its
customers), Minneapolis, Minnesota, owned approximately 30,590,109 shares
(14.12%); FBS Investment Services, Inc. (for the exclusive benefit of its
customers), Minneapolis, Minnesota, owned approximately 39,015,556 shares
(18.01%); and Norwest Investment Services, Inc., Minneapolis, Minnesota, owned
approximately 59,534,364 shares (27.47%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 5, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $1,795,7$1,616,197
Earned
Advisory Fee 1,181,771,058,480
Reduction
Brokerage 0 0
Commissions
Administrative 338,975 305,489
Fee
12b-1 Fee
Cash Series 1,108,546
Shares
Shareholder
Services Fee
Institutional 567,904
Shares
Cash Series 554,461
Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-years and since inception periods
ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
<PAGE>
Share Class 30-Day Period 1 Year 5 Years Since Inception*
INSTITUTIONAL SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* September 10, 1990
Share Class 30-Day Period 1 Year 5 Years Since Inception*
CASH SERIES SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
*January 7, 1991
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MINNESOTA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 36.50% 39.50% 44.50% 48.10%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
<PAGE>
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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 IBCA, 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.
<PAGE>
ADDRESSES
MINNESOTA MUNICIPAL CASH TRUST
Institutional Shares
Cash Series Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PROSPECTUS
NORTH CAROLINA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and the income tax imposed by the State of North
Carolina.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from federal regular income tax and the income tax imposed by the State of North
Carolina consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and North Carolina state income
tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of North Carolina Municipal Cash Trust as of the calendar
year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended 1997. The light
gray shaded chart features four distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1994 through 1997, are 2.63%, 3.55%,
3.16%, and 3.27%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND ON A YEARLY BASIS.
THE FUND IS NOT SOLD SUBJECT TO A SALES CHARGE (LOAD). HENCE, THE TOTAL RETURNS
DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE. 7-DAY NET YIELD AS OF
(12/31/97)* WAS 3.52%. THE FUND'S AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 076%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 93% (QUARTER ENDED JUNE
30, 1995). ITS LOWEST QUARTERLY RETURN WAS 055%
(QUARTER ENDED MARCH 31, 1994).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT
FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
NORTH CAROLINA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the North Carolina Municipal Cash Trust.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVER----------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in North Carolina Municipal Cash Trust with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in North Carolina Municipal Cash
Trust for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that North Carolina Municipal Cash Trust's operating
expenses are BEFORE WAIVERS as estimated above and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in North
Carolina. In addition, a substantial part of the Fund's portfolio may be
comprised of tax-exempt securities issued or credit enhanced by companies in
similar businesses or with other similar characteristics. As a result, the Fund
will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and North Carolina state income tax. Temporary investments
will be of comparable quality to other securities in which the Fund invests.
This may cause the Fund to give up greater investment returns to maintain the
safety of principal. This also may cause the Fund to receive and distribute
taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-North Carolina taxpayers because it invests in North
Carolina tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from North Carolina state personal income tax to the extent they
are derived from interest on obligations exempt from North Carolina personal
income taxes. Capital gains and non-exempt dividends are taxable whether paid in
cash or reinvested in the Fund. Redemptions are taxable sales. Please consult
your tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
North Carolina SAI 11/25/98
NORTH CAROLINA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229782
3090803A (12/98)
STATEMENT OF ADDITIONAL INFORMATION
NORTH CAROLINA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for North Carolina Municipal Cash Trust
dated December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 3142229782
3090803B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established one class of shares of the
Fund (Shares).
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax (excluding federal alternative minimum
tax for individuals and corporations) 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.
This policy is fundamental and cannot be changed without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation ("COPS"). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 (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
IBCA, 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 rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
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 Board 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 Board and repurchase agreements
providing for settlement in more than seven days after notice.
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 a nationally recognized rating service, 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.
DETERMINING MARKET VALUE OF SECURITIES
The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Shares: First Union Capital
Markets Corp., Charlotte, North Carolina, owned approximately 25,100,405 Shares
(11.62%); BHC Securities Inc., Philadelphia, Pennsylvania, owned approximately
19,135,376 Shares (8.86%); B. Fernandez & Hermanos, Inc., San Juan, Puerto Rico,
owned approximately 16,263,314 Shares (7.53%); The Shelton Companies, Charlotte,
North Carolina, owned approximately 12,105,375 Shares (5.58%); and Scott &
Stringfellow Inc., Richmond, Virginia, owned approximately 12,043,000 Shares
(5.58%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
<PAGE>
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $707,395$582,818
Earned
Advisory Fee 559,422 487,687
Reduction
Brokerage 0 0
Commissions
Administrative 126,345 125,000
Fee
Shareholder
Services Fee
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and since inception periods ended
OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class 30-Day Period 1 Year Since Inception*
Total Return -- % %
Yield % -- --
Effective Yield % -- --
Tax-Equivalent Yield % -- --
* December 31, 1993.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax- equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF NORTH CAROLINA
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE: 22.00% 35.00% 38.75% 43.75% 47.35%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.92% 2.31% 2.45% 2.67% 2.85%
2.00% 2.56% 3.08% 3.27% 3.56% 3.80%
2.50% 3.21% 3.85% 4.08% 4.44% 4.75%
3.00% 3.85% 4.62% 4.90% 5.33% 5.70%
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% 8.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. 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 IBCA, 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.
<PAGE>
ADDRESSES
NORTH CAROLINA MUNICIPAL CASH TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
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, PA 15222
PROSPECTUS
NEW JERSEY MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and New Jersey state income tax imposed by the State
of New Jersey.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income which is
exempt from federal regular income tax and New Jersey state income tax imposed
upon non-corporate taxpayers consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and New Jersey state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Shares of New Jersey Municipal Cash Trust
as of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "___%" and increasing
in increments of ___% up to ___%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features seven distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1991
through 1997, are 4.20%, 2.71%, 2.16%, 2.46%, 3.51%, 3.10%, and 3.23%,
respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.47%.
THE FUND'S INSTITUTIONAL SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST
RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.74%. WITHIN THE PERIOD SHOWN
IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 1.02% (QUARTER ENDED JUNE
30, 1991). ITS LOWEST QUARTERLY RETURN WAS 0.47% (QUARTER ENDED MARCH 31, 1994).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT FUTURE
PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
NEW JERSEY MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the New Jersey Municipal Cash Trust's Institutional Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- -------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the New Jersey Municipal Cash Trust's Institutional
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the New Jersey Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the New Jersey Municipal Cash
Trust's Institutional Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New Jersey.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and New Jersey state income tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-New Jersey taxpayers because it invests in New
Jersey tax-exempt securities. The Distributor and its affiliates may pay out of
their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are .0considered 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
12:00 noon (Eastern time) you will receive a redemption amount based on that
day's NAV without that day's dividend. This amount will be wired to you the same
day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from New Jersey state personal income tax to the extent they are
derived from interest on obligations exempt from New Jersey personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
NEW JERSEY MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229600
0100802A-IS (12/98)
<PAGE>
PROSPECTUS
NEW JERSEY MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from
federal regular income tax and New Jersey state income tax imposed by the State
of New Jersey.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset
value of $1.00. The Fund's investment objective is to provide current income
which is exempt from federal regular income tax and New Jersey state income tax
imposed upon non-corporate taxpayers consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and New Jersey state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Service Shares of New Jersey Municipal Cash
Trust as of the calendar year-end for each of seven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 4.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended 1997. The light gray shaded chart features seven distinct vertical bars,
each shaded in charcoal, and each visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Service Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1991 through 1997, are 4.13%, 2.60%, 2.05%, 2.36%, 3.40%, 2.99%,
and 3.12%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
CLASS ON A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SERVICE SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE
(LOAD). HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET
VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.37%.
THE FUND'S INSTITUTIONAL SERVICE SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE
MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.71%. WITHIN THE PERIOD
SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 1.01% (QUARTER ENDED
JUNE 30, 1991). ITS LOWEST QUARTERLY RETURN WAS 0.44% (QUARTER ENDED MARCH 31,
1994). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT
FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
NEW JERSEY MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the New Jersey Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee 0.10%
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- ---------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the New Jersey Municipal Cash Trust's Institutional
Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the New Jersey Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the New Jersey Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities
maturing in 13 months or less. The average maturity of the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX EXEMPT SECURITIES
Tax exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New Jersey.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and New Jersey state income tax. Temporary investments will
be of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or non-New Jersey taxpayers because it invests in New
Jersey tax-exempt securities. The Distributor and its affiliates may pay out of
their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
12:00 noon (Eastern time) you will receive a redemption amount based on that
day's NAV without that day's dividend. This amount will be wired to you the same
day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not
follow reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from New Jersey state personal income tax to the extent they are
derived from interest on obligations exempt from New Jersey personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
New Jersey SAI 11/25/98
NEW JERSEY MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229709
0100802A-SS (12/98)
STATEMENT OF ADDITIONAL INFORMATION
NEW JERSEY MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for New Jersey Municipal Cash Trust
dated December 31, 1998. Obtain the prospectus without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229709
0100802B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests so that at least 80% of the Fund's annual interest income is
exempt from federal regular income tax (excluding federal alternative minimum
tax for individuals and corporations) and New Jersey state income tax imposed
upon non-corporate taxpayers. This policy is fundamental and cannot be changed
without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation ("COPS"). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 (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
IBCA, 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 rating service can be treated as being
in one of the two highest short-term rating categories; currently, such
securities must be rated by two rating services in one of their two highest
rating categories. See "Regulatory Compliance."
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
non-publicly 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 (including instruments issued by a U.S. branch of a domestic bank or
savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment), securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Board 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 Board and repurchase agreements
providing for settlement in more than seven days notice.
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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
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 a nationally recognized rating service, 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.
DETERMINING MARKET VALUE OF SECURITIES
The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
RULE 12B-1 PLAN (INSTITUTIONAL SERVICE SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased.This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares: Fleet
Securities Corp., Rochester New York, owned approximately 36,409,465 Shares
(34.35%); First Union National Bank, Charlotte, North Carolina, owned
approximately 21,447,896 Shares (20.23%); United National Bank, Bridgewater, New
Jersey, owned approximately 18,450,110 Shares (17.41%); The Bopac Company,
Clifton, New Jersey, owned approximately 8,397,898 Shares (7.92%); and Fiduciary
Tr Co. International, New York, New York, owned approximately 5,337,000 Shares
(5.03%).
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Fiduciary Tr Co. International, New York, New York, owned approximately
14,649,500 Shares (22.26%); Tellson & Co., Gladstone, New Jersey, owned
approximately 10,760,707 Shares (16.35%); Victers Three D Inc., Maywood, New
Jersey, owned approximately 4,129,261 Shares (6.27%); Radnor Alloys Inc.,
Cranbury, New Jersey, owned approximately 3,933,603 Shares and First Union
Capital Markets Corp, Charlotte, North Carolina, owned approximately 3,405,368
Shares (5.17%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser. As of November 5, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $669,639$501,943
Earned
Advisory Fee 176,158 215,343
Reduction
Brokerage 0 0
Commissions
Administrative 155,000 155,108
Fee
12b-1 Fee
Shareholder
Services Fee
Institutional
Shares
Institutional
Service Shares
Fees are THE FUND FOR SERVICES allocated among Classes based on their pro rata
share of
Fund assets, except for marketing (Rule 12b-1) fees and shareholder services
fees, which are borne only by the applicable
Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE
FUND MEASURE
PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless
otherwise
stated, any
quoted Share performance reflects the effect of non-recurring charges, such as
maximum sales charges, which, if excluded, would increase the total return and
yield. The performance of Shares depends upon such variables as: portfolio
quality; average portfolio maturity; type and value of portfolio securities;
changes in interest rates; changes or differences in the Fund's or any class of
Shares' expenses; and various other factors.
Share
performance
fluctuates on a daily basis largely because net earnings and offering price per
Share fluctuate daily. Both net earnings and offering price per Share are
factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
AND YIELD Total returns given for the one-, five- and since inception periods
ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class
30-Day Period
1 Year
5 Years
Since Inception*
INSTITUTIONAL
SHARES
Total Return
--
%
%
%
Yield
%
- --
- --
- --
Effective Yield
%
- --
- --
- --
Tax-Equivalent
Yield
%
- --
- --
- --
* December 13,
1990.
Share Class
30-Day Period
1 Year
5 Years
Since Inception*
INSTITUTIONAL
SERVICE SHARES
Total Return
--
%
%
%
Yield
%
- --
- --
- --
Effective Yield
%
- --
- --
- --
Tax-Equivalent
Yield
%
- --
- --
- --
* December 13,
1990.
TOTAL RETURN Total return represents the change (expressed as a percentage) in
the value of Shares over a specific period of time, and includes the investment
of income and capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a thirty-day period; by (ii) the
maximum offering price per Share on the last day of the period. This number is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. 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 tax- equivalent yield of Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that Shares
would have had to earn to equal the actual yield, assuming a specific tax rate.
The yield, effective yield and tax-equivalent yield do not necessarily reflect
income actually earned by Shares because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX
EQUIVALENCY
TABLE Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
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- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF NEW JERSERY
MARRIED FILING JOINT
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%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
APPENDIX
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. 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 IBCA, 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.
<PAGE>
ADDRESSES
NEW JERSEY MUNICIPAL CASH TRUST
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
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, PA 15222
PROSPECTUS
NEW YORK MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
CASH II SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by New York State and
New York municipalities.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
47
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and the personal income taxes
imposed by New York State and New York municipalities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
Annual Total Return (Calendar years 1992 - 1997)
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Cash II Shares of New York Municipal Cash Trust as of
the calendar year-end for each of six years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Cash II Shares' start of business through the calendar year ended 1997.
The light gray shaded chart features six distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Cash II Shares for each calendar year is stated directly at
the top of each respective bar, for the calendar years 1992 through 1997 are
2.59%, 1.93%, 2.38%, 3.41%, 2.98% and 3.12%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S CASH II CLASS ON A YEARLY
BASIS.
THE FUND'S CASH II SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD). HENCE,
THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE. 7-DAY NET
YIELD AS OF (12/31/97)* WAS 3.39%. THE FUND'S CASH II SHARES AVERAGE ANNUAL
TOTAL RETURN AS OF THE MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS
0.72%. WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN
WAS 0.88% (QUARTER ENDED JUNE 30, 1995). ITS LOWEST QUARTERLY RETURN WAS 0.45%
(QUARTER ENDED MARCH 31, 1994).
*INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
NEW YORK MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the New York Municipal Cash Trust's Cash II Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions)
( as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee 1 0.40%
Shareholder Services Fee 0.25%
Distribution (12b-1) Fee 2 0.25%
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER
31, 1998.
Waiver of Fund expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE DISTRIBUTION (12B-1) FEE HAS BEEN VOLUNTARILY WAIVED. THIS VOLUNTARY
WAIVER CAN BE TERMINATED AT ANY TIME. THE DISTRIBUTION (12B-1) FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS ______% FOR THE YEAR ENDED OCTOBER 31,
1998. EXAMPLE The following Example is intended to help you compare the cost of
investing in the New York Municipal Cash Trust's Cash II Shares with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the New York Municipal Cash
Trust's Cash II Shares for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the New York Municipal Cash
Trust's Cash II Shares' operating expenses are BEFORE WAIVERS as estimated above
and remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR 3 5 10 YEARS
YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New York.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income taxes imposed by New York State and
New York municipalities. Temporary investments will be of comparable quality to
other securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal.
This also may cause the Fund to receive and distribute taxable income to
investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 3:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. Accounts established through investment
professionals may be subject to higher or lower minimum investment requirements
than those imposed by the Fund. Keep in mind that investment professionals may
charge you fees for their services in connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Service Shares and Cash II
Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Cash II Shares. Each share class has different
expenses, which affect their performance. Contact your investment professional
or call 1-800-341-7400 for more information concerning the other class.
The Fund's distributor markets the Shares described in this prospectus to
institutions or to individuals directly or through investment professionals. The
Fund may not be a suitable investment for retirement plans or for non-New York
taxpayers because it invests in New York tax-exempt securities. The Distributor
and its affiliates may pay out of their assets amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated). In
connection with any sale, the Distributor may from time to time offer certain
items of nominal value to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. You will receive
a redemption amount based on the NAV on the day the Fund receives your written
request in proper form. Dividends are paid up to and including the day that a
redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from New York state personal income tax to the extent they are
derived from interest on obligations exempt from New York personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
NEW YORK MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
CASH II SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229733
G00208-02 (12/98)
PROSPECTUS
NEW YORK MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by New York State and
New York municipalities.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and the personal income taxes
imposed by New York State and New York municipalities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of New York Municipal Cash
Trust as of the calendar year-end for each of eleven years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended 1997. The light gray shaded chart features eleven distinct vertical bars,
each shaded in charcoal, and each visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Service Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1987 through 1997, are 4.10%, 4.76%, 5.76%, 5.52%, 4.30%, 2.75%,
2.10%, 2.57%, 3.59%, 3.17%, and 3.30%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
CLASS ON A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SERVICE SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE
(LOAD). HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET
VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.57%.
THE FUND'S INSTITUTIONAL SERVICE SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE
MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.76 %. WITHIN THE PERIOD
SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 1.49% (QUARTER ENDED
JUNE 30, 1989). ITS LOWEST QUARTERLY RETURN WAS 0.49% (QUARTER ENDED MARCH 31,
1994). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
NEW YORK MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the New York Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original None
purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) ( as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.40%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee3 0.25%
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998.
Waiver of Fund expenses1 2 3
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- ------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. 3 THE DISTRIBUTION (12B-1) FEE HAS BEEN VOLUNTARILY WAIVED.
THIS VOLUNTARY WAIVER CAN BE TERMINATED AT ANYTIME. THE (12B-1) FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS __% FOR THE YEAR ENDED OCTOBER 31, 1998.
EXAMPLE The following Example is intended to help you compare the cost of
investing in the New York Municipal Cash Trust's Institutional Service Shares
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the New York Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the New York Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 10
YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in New York.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income taxes imposed by New York State and
New York municipalities. Temporary investments will be of comparable quality to
other securities in which the Fund invests. This may cause the Fund to give up
greater investment returns to maintain the safety of principal. This also may
cause the Fund to receive and distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 3:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Service Shares and Cash II
Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-New York taxpayers because it invests in New
York tax-exempt securities. The Distributor and its affiliates may pay out of
their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund. You will receive
a redemption amount based on the NAV on the day the Fund receives your written
request in proper form. Dividends are paid up to and including the day that a
redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from New York state personal income tax to the extent they are
derived from interest on obligations exempt from New York personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
69 NY SAI
NEW YORK MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229741
G00208-01 (12/98)
STATEMENT OF ADDITIONAL INFORMATION
NEW YORK MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
CASH II SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for New York Municipal Cash Trust,
dated December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Massachusetts Partnership Law
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229741
CUSIP 314229733
8120103B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Service Shares and Cash II Shares (Shares). This
SAI relates to all of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and the
personal income taxes imposed by New York State and New York municipalities.
This policy is fundamental and cannot be changed without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 ("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 IBCA, 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 rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance." 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 securities is deemed to 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 tax-exempt 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 tax-exempt 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 0.5% of 1% of the issuer's securities, together own more
than 5% of the issuer's securities.
INVESTING IN OPTIONS
The Fund will not purchase or sell puts, calls, straddles, spreads, or any
combination of them, except that the Fund may purchase tax-exempt 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 nationally recognized rating services, 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. DETERMINING
MARKET VALUE OF SECURITIES The Board has 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 Board 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 Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased.This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the financial intermediary with regard to the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
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.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 6, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Fiduciary Trust Co. International, New York, New York, owned
approximately 106,493,600 shares (20.64%) and Fleet Securities Corp., Rochester,
New York, owned approximately 84,888,049 shares (16.46%).
As of November 6, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Cash II Shares: North Fork
Bank, Mattituck, New York, owned approximately 5,633,392 shares (12.19%) and
Compass Investment Services Corp., Melville, New York, owned approximately
5,462,532 shares (11.74%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of November 6, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON*
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 31, 1998 1997 1996
Advisory Fee $ $1,787,40$1,298,934
Earned
Advisory Fee $421,045 $351,948
Reduction
Brokerage 0 0
Commissions
Administrative $337,389 $245,547
Fee
12b-1 Fee
Institutional $1,059,609
Service Shares
Cash II Shares $57,455
Shareholder
Services Fee
Institutional $1,059,609
Service Shares
Cash II Shares $57,455
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year, ten-year and since inception
periods ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class 30-Day Period 1 Year 5 Years 10 Years Since Inception*
INSTITUTIONAL SERVICE SHARES
Total Return -- % % % %
Yield % -- -- -- --
Effective Yield % -- -- -- --
Tax-Equivalent Yield % -- -- -- --
* November 28, 1982
Share Class 30-Day Period 1 Year 5 Years 10-Years Since Inception*
CASH II SHARES
Total Return -- % % % %
Yield % -- -- -- --
Effective Yield % -- -- -- --
Tax-Equivalent Yield % -- -- -- --
* April 25, 1991
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998 STATE OF NEW YORK
<S> <C> <C> <C> <C> <C>
FEDERAL TAX 15.00% 28.00% 31.00% 36.00% 39.60%
BRACKET:
COMBINED FEDERAL
AND STATE TAX 21.850% 34.850% 37.850% 42.850% 46.450%
BRACKET:
Joint Return $1-42,350 $42,351-102,300 $102,301-155,950$155,951-278,450OVER
$278,450
Single Return $1-25,350 $25,351-61,400 $61,401-128,100 $128,101-278,450OVER
$278,450
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.92% 2.30% 2.41% 2.62% 2.80%
2.00% 2.56% 3.07% 3.22% 3.50% 3.73%
2.50% 3.20% 3.84% 4.02% 4.37% 4.67%
3.00% 3.84% 4.60% 4.83% 5.25% 5.60%
3.50% 4.48% 5.37% 5.63% 6.12% 6.54%
4.00% 5.12% 6.14% 6.44% 7.00% 7.47%
4.50% 5.76% 6.91% 7.24% 7.87% 8.40%
5.00% 6.40% 7.67% 8.05% 8.75% 9.34%
5.50% 7.04% 8.44% 8.85% 9.62% 10.27%
6.00% 7.68% 9.21% 9.65% 10.50% 11.20%
</TABLE>
<PAGE>
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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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 SERVICE, L.P. 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.
<PAGE>
ADDRESSES
NEW YORK MUNICIPAL CASH TRUST
Institutional Service Shares
Cash II Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PROSPECTUS
TENNESSEE MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Tennessee.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS, AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Tennessee dividend and
interest income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Shares of Tennessee Municipal Cash Trust as
of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features one distinct vertical bar, shaded in
charcoal, and visually representing by height the total return percentage for
the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for the calendar year is stated directly
at the top of the bar, for the calendar year 1997, the total return was 3.50%.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.83%. THE FUND'S INSTITUTIONAL SHARES
AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST RECENT CALENDAR QUARTER OF SEPTEMBER
30, 1998 WAS 2.53%. WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S HIGHEST
QUARTERLY RETURN WAS 0.91% (QUARTER ENDED JUNE 30, 1997). ITS LOWEST QUARTERLY
RETURN WAS 0.80%
(QUARTER ENDED MARCH 31, 1997).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
<TABLE>
<CAPTION>
TENNESSEE MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Tennessee Municipal Cash Trust's Institutional Shares.
<S> <C>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
</TABLE>
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) Although not
contractually obligated to do so, the adviser waived and distributor reimbursed
certain amounts. These are shown below along with the net expenses the Fund
ACTUALLY paid for the fiscal year ended October 31, 1998. Waiver of Fund
expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- ------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Tennessee Municipal Cash Trust's Institutional
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Tennessee Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Tennessee Municipal Cash
Trust's Institutional Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. Fixed
Income securities pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Tax-exempt securities that require the issuer or a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The
securities also bear interest at a variable rate intended to cause the
securities to trade at their face value. The Fund treats demand instruments as
short-term securities, even though their stated maturity may extend beyond
thirteen months.
MUNICIPAL NOTES
Short-term tax-exempt securities. Many municipalities issue such notes to fund
their current operations prior collecting taxes or other municipal revenues.
Municipalities may also issue notes to fund capital projects prior to issuing
long-term bonds. The issuers typically repay the notes at the end of their
fiscal year, either with taxes, other revenues or proceeds from newly issued
notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Tennessee.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income tax imposed by the State of
Tennessee. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may cause the
Fund to receive and distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Tennessee taxpayers because it invests in
Tennessee tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
<PAGE>
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
<PAGE>
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Tennessee state personal income tax to the extent they are
derived from interest on obligations exempt from Tennessee personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
TENNESSEE MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229642
G01682-01 (12/98)
PROSPECTUS
TENNESSEE MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Tennessee.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Tennessee dividend and
interest income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total return of Institutional Service Shares of Tennessee Municipal Cash
Trust as of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended 1997. The light gray shaded chart features one distinct vertical bar,
shaded in charcoal, and visually representing by height the total return
percentage for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Service Shares for the calendar
year is stated directly at the top of each respective bar, for the calendar year
1997 the total return was 3.24%.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
CLASS ON A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SERVICE SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE
(LOAD). HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET
VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.58%.
THE FUND'S INSTITUTIONAL SERVICE SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE
MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.76%. WITHIN THE PERIOD
SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 0.84% (QUARTER ENDED
JUNE 30, 1997). ITS LOWEST QUARTERLY RETURN WAS 0.74% (QUARTER ENDED MARCH 31,
1997). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400 WHILE PAST PERFORMANCE DOES NOT NECESSARILY PREDICT
FUTURE PERFORMANCE, THIS INFORMATION PROVIDES YOU WITH HISTORICAL PERFORMANCE
INFORMATION SO THAT YOU CAN ANALYZE WHETHER THE FUND'S INVESTMENT RISKS ARE
BALANCED BY ITS POTENTIAL REWARDS.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
TENNESSEE MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Tennessee Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) ( as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.50%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses 0.58%
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) 1.33% ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
Waiver of Fund expenses1 2 0.73%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.60%
- ------------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Tennessee Municipal Cash Trust's Institutional
Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Tennessee Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Tennessee Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption $135 $421 $729 $1,601
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment.
FIXED INCOME SECURITIES
Fixed Income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond thirteen months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
<PAGE>
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Tennessee.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and the personal income tax imposed by the State of
Tennessee. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
investment returns to maintain the safety of principal. This also may cause the
Fund to receive and distribute taxable income to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $10,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Tennessee taxpayers because it invests in
Tennessee tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
<PAGE>
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Tennessee state personal income tax to the extent they are
derived from interest on obligations exempt from Tennessee personal income
taxes. Capital gains and non-exempt dividends are taxable whether paid in cash
or reinvested in the Fund. Redemptions are taxable sales. Please consult your
tax preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial statements to be filed by Amendment)
<PAGE>
TENNESSEE MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229634
G01682-02 (12/98)
STATEMENT OF ADDITIONAL INFORMATION
TENNESSEE MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Tennessee Municipal Cash Trust
dated December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229634
CUSIP 314229642
G01682-03 (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and the
personal income tax imposed by the State of Tennessee. This policy is
fundamental and cannot be changed without shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT 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 rating service
or be of comparable quality to securities having such ratings. A rating
service'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 (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 IBCA, 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 rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest-rating categories. See
"Regulatory Compliance."
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
non-publicly issued Tennessee tax-exempt 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.
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 Board 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 Board and repurchase agreements
providing for settlement in more than seven days notice.
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 nationally recognized statistical rating organizations,
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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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 Board 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares: FUBS
& Co. (for the benefit of Chris C. Pardue), Charlotte, North Carolina, owned
approximately 2,720,000 Shares (6.01%); Sharp Market & Company, Home Federal
Bank FSB, Knoxville, Tennessee, owned approximately 4,219,575 Shares (9.32%);
Chase Manhattan Bank, Brooklyn, New York, owned approximately 4,602,327 Shares
(10.17%); Trust Co. of Knoxville, Knoxville, Tennessee, owned approximately
7,349,169 Shares (16.23%); Reep & CO., Pioneer Bank, Chattanooga, Tennessee,
owned approximately 8,533,192 Shares (18.85%); and James A. Massey,
Collierville, Tennessee, owned approximately 11,670,113 Shares (25.78%).
As of November 5, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Coca Cola Bottling Works of Tullahoma, Inc., Tullahoma, Tennessee, owned
approximately 1,735,040 Shares (13.11%); Derril and Margaret Reeves, Brentwood,
Tennessee, owned approximately 2,823,278 Shares (8.68%); Dent Thompson,
Nashville, Tennessee, owned approximately 2,901,857 Shares (8.92%); BHC
Securities, Inc., Philadelphia, Pennsylvania, owned approximately 4,263,027
Shares (13.11%); and Boswell Family Rev. Trust, Nashville, Tennessee, owned
approximately 7,013,281 Shares (21.56%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of October 9, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 1998 1997 1996
31,
Advisory Fee $ $221,951 $
Earned
Advisory Fee 221,951
Reduction
Brokerage 0
Commissions
Administrative 154,970
Fee
Shareholder
Services Fee
Institutional 45,1618
Shares
Institutional 65,858
Service Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
<PAGE>
Total returns given for the one-year and since inception periods ended OCTOBER
31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
<PAGE>
Share Class 30-Day Period 1 Year Since Inception*
INSTITUTIONAL SHARES
Total Return -- % %
Yield % -- --
Effective Yield % -- --
Tax-Equivalent Yield % -- --
* May 22, 1996
Share Class 30-Day Period 1 Year Since Inception*
INSTITUTIONAL SERVICE SHARES
Total Return -- % %
Yield % -- --
Effective Yield % -- --
Tax-Equivalent Yield % -- --
* May 22, 1996
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
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- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
MOODY'S INVESTORS SERVICE, INC., FITCH IBCA, INC., AND STANDARD & POOR'S Various
publications.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/ agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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-1+, 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.
<PAGE>
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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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.
<PAGE>
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 IBCA, 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.
<PAGE>
ADDRESSES
TENNESSEE MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PROSPECTUS
VIRGINIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Virginia state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Virginia Municipal Cash Trust as
of the calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 4.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Shares' start of business through the calendar year ended
1997. The light gray shaded chart features four distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1997, are 2.73%, 3.59%, 3.17% and 3.36%, respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SHARES CLASS ON
A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE (LOAD).
HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.60%. THE FUND'S INSTITUTIONAL SHARES
AVERAGE ANNUAL TOTAL RETURN AS OF THE MOST RECENT CALENDAR QUARTER OF SEPTEMBER
30, 1998 WAS 0.78%. WITHIN THE PERIOD SHOWN IN THE CHART, THE FUND'S HIGHEST
QUARTERLY RETURN WAS 0.93% (QUARTER ENDED JUNE 30, 1995). ITS LOWEST QUARTERLY
RETURN WAS 0.57%
(QUARTER ENDED MARCH 31, 1994).
* INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY CALLING
1-800-341-7400.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
VIRGINIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Virginia Municipal Cash Trust's Institutional Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) ( as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee1 0.40%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER
31, 1998.
Waiver of Fund expenses 1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- --------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY WAIVED. THIS VOLUNTARY
WAIVER CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS ______% FOR THE YEAR ENDED OCTOBER 31,
1998. EXAMPLE The following Example is intended to help you compare the cost of
investing in the Virginia Municipal Cash Trust's Institutional Shares with the
cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Virginia Municipal Cash
Trust's Institutional Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Virginia Municipal Cash
Trust's Institutional Shares' operating expenses are BEFORE WAIVERS as estimated
above and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Virginia.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Virginia state income tax. Temporary investments will be
of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Virginia taxpayers because it invests in
Virginia tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Virginia state personal income tax to the extent they are
derived from interest on obligations exempt from Virginia personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
VIRGINIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
World-Class Investment Manager
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229816
3080591A-IS (12/98)
PROSPECTUS
VIRGINIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
PROSPECTUS DATED DECEMBER 31, 1998
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax-exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax (excluding federal alternative
minimum tax for individuals and corporations) and Virginia state income tax.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Virginia Municipal Cash
Trust as of the calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 0.50% up to 3.50%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Institutional Service Shares' start of business through the calendar year
ended 1997. The light gray shaded chart features four distinct vertical bars,
each shaded in charcoal, and each visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Institutional Service Shares for each
calendar year is stated directly at the top of each respective bar, for the
calendar years 1994 through 1997, are 2.60%, 3.49%, 3.07% and 3.21%,
respectively.
THE BAR CHART SHOWS THE VARIABILITY OF THE FUND'S INSTITUTIONAL SERVICE SHARES
CLASS ON A YEARLY BASIS.
THE FUND'S INSTITUTIONAL SERVICE SHARES ARE NOT SOLD SUBJECT TO A SALES CHARGE
(LOAD). HENCE, THE TOTAL RETURNS DISPLAYED ABOVE ARE BASED UPON THE NET ASSET
VALUE.
7-DAY NET YIELD AS OF (12/31/97)* WAS 3.45%.
THE FUND'S INSTITUTIONAL SERVICE SHARES AVERAGE ANNUAL TOTAL RETURN AS OF THE
MOST RECENT CALENDAR QUARTER OF SEPTEMBER 30, 1998 WAS 0.75%. WITHIN THE PERIOD
SHOWN IN THE CHART, THE FUND'S HIGHEST QUARTERLY RETURN WAS 0.90% (QUARTER ENDED
JUNE 30, 1995). ITS LOWEST QUARTERLY RETURN WAS 0.55% (QUARTER ENDED MARCH 31,
1994). * INVESTORS MAY CALL THE FUND TO ACQUIRE THE CURRENT 7-DAY NET YIELD BY
CALLING 1-800-341-7400
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
VIRGINIA MUNICIPAL CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Virginia Municipal Cash Trust's Institutional Service Shares.
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of None
offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of original None
purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) ( as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fee1 0.40%
Shareholder Services Fee2 0.25%
Distribution (12b-1) Fee None
Other Expenses
TOTAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) ALTHOUGH NOT
CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND DISTRIBUTOR REIMBURSED
CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET EXPENSES THE FUND
ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER
31, 1998.
Waiver of Fund expenses1 2
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS)
- -----------------------------------------------------------------------
1 THE ADVISER VOLUNTARILY WAIVED A PORTION OF THE MANAGEMENT FEE. THE ADVISER
CAN TERMINATE THIS VOLUNTARY WAIVER AT ANY TIME. THE MANAGEMENT FEE PAID BY THE
FUND (AFTER THE VOLUNTARY WAIVER) WAS _____% FOR THE YEAR ENDED OCTOBER 31,
1998. 2 THE SHAREHOLDER SERVICES FEE HAS BEEN VOLUNTARILY REDUCED. THIS
VOLUNTARY REDUCTION CAN BE TERMINATED AT ANY TIME. THE SHAREHOLDER SERVICES FEE
PAID BY THE FUND (AFTER THE VOLUNTARY REDUCTION) WAS ______% FOR THE YEAR ENDED
OCTOBER 31, 1998. EXAMPLE The following Example is intended to help you compare
the cost of investing in the Virginia Municipal Cash Trust's Institutional
Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Virginia Municipal Cash
Trust's Institutional Service Shares for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Virginia Municipal
Cash Trust's Institutional Service Shares' operating expenses are BEFORE WAIVERS
as estimated above and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 5 10 YEARS
YEARS YEARS
Payment of the maximum sales charge 0 0 0 0
Expenses assuming no redemption 0 0 0 0
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high-quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio, computed on
a dollar-weighted basis, will be 90 days or less.
The Fund's Adviser performs a fundamental credit analysis to develop an approved
list of issuers and securities that meet the Adviser's minimum credit standards.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax-exempt securities available. The Adviser structures the
portfolio by combining variable rate demand instruments and municipal notes.
Depending on the supply of tax-exempt securities, the Adviser generally shortens
the portfolio's maturity when it expects interest rates to rise and extends the
maturity when it expects interest rates to fall.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
TAX-EXEMPT SECURITIES
Tax-exempt securities are FIXED INCOME SECURITIES that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax-exempt securities. Tax-exempt
securities are generally differentiated by their source of repayment. FIXED
INCOME SECURITIES pay interest, dividends or distributions at a specified rate.
The rate may be fixed or adjusted periodically. The issuer must also repay the
principal amount of the security, normally within a specified time.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax-exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also bear interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax-exempt securities. Many municipalities issue
such notes to fund their current operations prior collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISK
Credit risk is the possibility that an issuer or a credit enhancer will default
(fails to repay interest and principal when due). If an issuer or credit
enhancer defaults, the Fund will lose money. Money market funds try to minimize
this risk by purchasing higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. If the security is unrated, greater reliance is placed on the
Adviser's credit assessment.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISK
Most of the Fund's securities will be invested in issuers located in Virginia.
In addition, a substantial part of the Fund's portfolio may be comprised of
tax-exempt securities issued or credit enhanced by companies in similar
businesses or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
TEMPORARY INVESTMENTS
During adverse market conditions the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax and Virginia state income tax. Temporary investments will be
of comparable quality to other securities in which the Fund invests. This may
cause the Fund to give up greater investment returns to maintain the safety of
principal. This also may cause the Fund to receive and distribute taxable income
to investors.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined public offering price.
The public offering price is defined as the net asset value (NAV) plus any
applicable sales charge. Fund Shares are sold without a sales charge. The Fund
attempts to stabilize the net asset value of Shares at $1.00 by valuing the
portfolio securities using an accounting method called "amortized cost." NAV is
determined at 12:00 noon and 1:00 p.m. (Eastern time) and as of the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller minimum amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to higher or lower
minimum investment requirements than those imposed by the Fund. Keep in mind
that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW IS THE FUND SOLD?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's distributor markets the Shares described in this prospectus to
institutions acting in a fiduciary or agency capacity or to individuals directly
or through investment professionals. The Fund may not be a suitable investment
for retirement plans or for non-Virginia taxpayers because it invests in
Virginia tax-exempt securities. The Distributor and its affiliates may pay out
of their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated). In connection with any
sale, the Distributor may from time to time offer certain items of nominal value
to any shareholder or investor.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
Establish an account with the investment professional; and
Submit your purchase order to the investment professional before 1:00 p.m.
(Eastern time).
You will receive that day's dividend if the investment professional forwards the
order to the Fund and the Fund receives payment by 3:00 p.m. (Eastern time) on
the same day. You will become the owner of Shares and receive dividends when the
Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
Establish your account with the Fund by submitting a completed New Account
Form; and Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares on the day the Fund receives your wire or
your check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder on the day the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
HOW TO REDEEM SHARES
You should redeem Shares:
through an investment professional if you purchased Shares through an
investment professional; or directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the NAV on the day the Fund receives the
order from your investment professional. Redemption requests received by the
Fund before 12:00 noon (Eastern time) will not include that day's dividend.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) you will receive a redemption
amount based on that day's NAV without that day's dividend. This amount will be
wired to you the same day.
If you call after 12:00 noon (Eastern time) you will receive a redemption amount
based on that day's NAV and will receive that day's dividend. This amount will
be wired to you the following business day. Under limited circumstances,
arrangements may be made with the Distributor for same-day payment of redemption
proceeds, without that day's dividend, for redemption requests received before
2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
Fund Name and Share Class, account number and account registration; amount to
be redeemed; and signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within
the last thirty days; or a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
an electronic transfer to your account at a financial institution that is an
ACH member; or wire payment to your account at a domestic commercial bank
that is a Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. Payment may be delayed up to seven
days:
to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares on a regular basis by completing the
appropriate section of the New Account Form or an Account Service Options Form
or by contacting your investment professional or the Fund. Your account value
must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares
for purchases. A fee will be charged to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
ACCOUNT STATEMENTS
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase shares by wire, you begin earning dividends on the day your wire is
received. If you purchase shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
Contact your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, the shareholder will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes, although the Fund's dividends
will be exempt from Virginia state personal income tax to the extent they are
derived from interest on obligations exempt from Virginia personal income taxes.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund. Redemptions are taxable sales. Please consult your tax
preparer regarding your federal, state and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which totaled over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of .40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
(Financial Statements to be filed by Amendment)
<PAGE>
16 VA SAI
VIRGINIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SERVICE SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's semi-annual report to
shareholders. To obtain the SAI and semi-annual report and other information
without charge call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
FEDERATED
WORLD-CLASS INVESTMENT MANAGER
FEDERATED INVESTORS, INC.
FEDERATED INVESTORS TOWER
1001 LIBERTY AVENUE
PITTSBURGH, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
FEDERATED SECURITIES CORP., DISTRIBUTOR
INVESTMENT COMPANY ACT FILE NO. 811-5911
CUSIP 314229824
3080501A-SS (12/98)
STATEMENT OF ADDITIONAL INFORMATION
VIRGINIA MUNICIPAL CASH TRUST
A Portfolio of Federated Municipal Trust
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Virginia Municipal Cash Trust dated
December 31, 1998. Obtain the prospectuses without charge by calling
1-800-341-7400.
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Massachusetts Partnership Law
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses
STATEMENT DATED DECEMBER 31, 1998
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314229816
CUSIP 314229824
3080501B (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a portfolio of Federated Municipal Trust (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on September 1, 1989. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to all of the classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
The Fund invests in tax-exempt securities so that at least 80% of the Fund's
annual interest income is exempt from federal regular income tax (excluding
federal alternative minimum tax for individuals and corporations) and Virginia
state income tax. This policy is fundamental and cannot be changed without
shareholder approval.
Other tax-exempt securities in which the Fund invests include:
GENERAL OBLIGATION BONDS are supported by the issuer's full faith and credit.
The issuer must levy and collect taxes sufficient to pay principal and interest
on the bonds. However, the issuer's authority to levy additional taxes may be
limited by its charter or state law.
SPECIAL REVENUE BONDS are payable solely from specific revenues received by the
issuer. The revenues may consist of specific taxes, assessments, tolls, fees or
other types of municipal revenues. For example, a municipality may issue bonds
to build a toll road, and pledge the tolls to repay the bonds. Bondholders could
not collect from the municipality's general taxes or revenues. Therefore, any
shortfall in the tolls normally would result in a default on the bonds.
PRIVATE ACTIVITY BONDS are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds to the
company using the factory, and the company would agree make loan payments
sufficient to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
MUNICIPAL LEASES
Municipalities frequently enter into leases for equipment or facilities. In
order to comply with state public financing laws, these lease are typically
subject to annual appropriation. In other words, a municipality may end a lease,
without penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the equipment
or facility.
The Fund typically invests in securities supported by pools of municipal leases.
The most common type of lease backed securities are certificates of
participation (COPs). However, the Fund may also invest directly in individual
leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to a
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISK
In order to be tax-exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
INVESTMENT RATINGS
A nationally recognized rating service'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 ("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 IBCA, 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 rating service can be
treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two rating services in one of their
two highest rating categories. See "Regulatory Compliance."
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 tax-exempt 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 (the Fund considers cash items to be instruments issued by a U.S. branch
of a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment), securities issued
or guaranteed by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Board 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 Board, and repurchase agreements
providing for settlement in more than seven days after notice.
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
nationally recognized rating services 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.
DETERMINING MARKET VALUE OF SECURITIES
The Board has 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 Board 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
Board 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 Board 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.
WHAT DO SHARES COST?
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services may select others to
perform these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the financial intermediary with regard to the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
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.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of November 6, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Shares:
Comfort & Co., Old Point National Bank, Newport News, Virginia, owned
approximately 5,811,328 shares (21.44%); EAMCO, Riggs Bank N.A., Washington, DC,
owned approximately 5,456,498 shares (20.13%); VATCO, The Trust Company of
Virginia, Richmond, Virginia, owned approximately 5,127,927 shares (18.92%);
Planta & Co., Planters Bank & Trust Co., Staunton, Virginia, owned approximately
2,243,816 shares (8.28%); and FUBS & CO FBO, Charlotte, North Carolina, owned
approximately 1,470,184 shares (5.42%).
As of November 6, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Institutional Service
Shares: Scott & Stringfellow, Inc., Richmond, Virginia, owned approximately
87,499,500 shares (33.73%) and First Union Capital Markets Corp., Charlotte,
North Carolina, owned approximately 22,261,768 shares (8.58%).
Shareholders owning 25% or more of outstanding Shares may be in control 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 Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
STATE 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 or gain from obligations issued by or on behalf of the Commonwealth of
Virginia or any political subdivision thereof; or (ii) interest or gain 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of 17 Funds and the Federated Fund Complex
is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.
As of November 6, 1998 the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex;
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
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
Director or Trustee of the Federated Fund Complex; 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.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; 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, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
JAMES E. DOWD, ESQ.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly: President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown; Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly: Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly:
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $122,362
PETER E. MADDEN
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
JOHN E. MURRAY, JR., J.D., S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly: Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
WESLEY W. POSVAR
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly: Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
MARJORIE P. SMUTS
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly: National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $111,222
GLEN R. JOHNSON *
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $ 0
J. CHRISTOPHER DONAHUE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, 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. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
EDWARD C. GONZALES
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; 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.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
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.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<PAGE>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE NET ASSETS OF THE
FEE FEDERATED FUNDS
0.150 of 1% on the first $250
million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR
ENDED OCTOBER 31, 1998 1997 1996
Advisory Fee $881,787 $657,332
Earned
Advisory Fee $246,296 $243,090
Reduction
Brokerage 0 0
Commissions
Administrative $166,299 $155,000
Fee
Shareholder
Services Fee
Institutional $56,180
Shares
Institutional $494,971
Service Shares
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing fees and shareholder services fees, which are borne only by
the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and since inception periods
ended OCTOBER 31, 1998.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended OCTOBER 31, 1998.
Share Class 30-Day Period 1 Year 5 Years Since Inception*
INSTITUTIONAL SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* September 16, 1993
Share Class 30-Day Period 1 Year 5 Years Since Inception*
INSTITUTIONAL SERVICE SHARES
Total Return -- % % %
Yield % -- -- --
Effective Yield % -- -- --
Tax-Equivalent Yield % -- -- --
* September 16, 1993
<PAGE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. 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 tax-equivalent yield of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that Shares would have
had to earn to equal the actual yield, assuming a specific tax rate. The yield,
effective yield and tax-equivalent yield do not necessarily reflect income
actually earned by Shares because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the tax-exempt securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF VIRGINIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.75% 33.75% 36.75% 41.75% 45.35%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.89% 2.26% 2.37% 2.58% 2.74%
2.00% 2.52% 3.02% 3.16% 3.43% 3.66%
2.50% 3.15% 3.77% 3.95% 4.29% 4.57%
3.00% 3.79% 4.53% 4.74% 5.15% 5.49%
3.50% 4.42% 5.28% 5.53% 6.01% 6.40%
4.00% 5.05% 6.04% 6.32% 6.87% 7.32%
4.50% 5.68% 6.79% 7.11% 7.73% 8.23%
5.00% 6.31% 7.55% 7.91% 8.58% 9.15%
5.50% 6.94% 8.30% 8.70% 9.44% 10.06%
6.00% 7.57% 9.06% 9.49% 10.30% 10.98%
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.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment; discussions of
economic, financial and political developments and their impact on the
securities market, including the portfolio manager's views on how such
developments could impact the Funds; and information about the mutual fund
industry from sources such as the Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
FINANCIAL PUBLICATIONS
THE WALL STREET JOURNAL, BUSINESS WEEK, CHANGING TIMES, FINANCIAL WORLD, FORBES,
FORTUNE and MONEY magazines, among others--provide performance statistics over
specified time periods.
IBC/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.
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of tax-exempt securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $200 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1997, Federated manages 9
mortgage-backed, 6 government/agency and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--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 Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (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-1+, 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 rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S 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 SERVICE, L.P. 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.
<PAGE>
ADDRESSES
VIRGINIA MUNICIPAL CASH TRUST
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue,
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
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) Conformed copy of Declaration of Trust of the Registrant (i) Conformed
copies of amendments to the Declaration of Trust:
Amendment No. 1 does not exist;(31)
Amendment No. 2 dated March 16, 1990; (31)
Amendment No. 3 dated August 1, 1990; (31)
Amendment No. 4 dated September 1, 1989; (7)
Amendment No. 5 dated December 12, 1990; (31)
Amendment No. 6 dated March 21, 1991; (31)
Amendment No. 7 dated August 26, 1991; (31)
Amendment No. 8 dated February 13, 1992; (31)
Amendment No. 9 dated November 9, 1992; (31)
Amendment No. 10 dated November 18, 1992; (12)
Amendment No. 11 dated May 24, 1993; (31)
Amendment No. 12 dated Nov. 22, 1993; (17)
Amendment No. 13 dated February 24, 1994; (17)
Amendment No. 14 dated August 25, 1994; (20)
Amendment No. 15 dated August 25, 1994; (31)
Amendment No. 16 dated May 18, 1995; (31)
Amendment No. 17 dated November 14, 1995; (28)
Amendment No. 18 dated February 29, 1996; (31)
Amendment No. 19 dated November 25, 1996; (34)
Amendment No. 20 dated April 7, 1997; (34)
Amendment No. 21 dated February 23, 1998; (34)
(b) Copy of By-Laws of the Registrant; (7)
(i) Copy of Amendment No. 1 to By-Laws dated November 18, 1997; (35) (ii)
Copy of Amendment No. 2 to By-Laws dated February 23, 1998; (35) (iii)
Copy of Amendment No. 3 to By-Laws dated February 27, 1998; (35) (iv) Copy
of Amendment No. 4 to By-Laws dated May 12, 1998; (35)
- ---
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed on November 6, 1990 (File Nos. 33-31259
and 811-5911).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on December 23, 1992 (File Nos.
33-31259 and 811-5911).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on March 2, 1994 (File Nos. 33-31259
and 811-5911).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed on September 19, 1994 (File Nos.
33-31259 and 811-5911).
28. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 39 on Form N-1A filed on December 22, 1995 (Filed Nos.
33-31259 and 811-5911).
31. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 43 on Form N-1A filed on November 29, 1996 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre- Effective
Amendment No. 46 on Form N-1A filed on March 16, 1998 (File Nos. 33-31259
and 811-5911).
35. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 47 on Form N-1A filed on October 28, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
(c) (i) Copy of Specimen Certificates for Shares of
Beneficial Interest of Alabama Municipal Cash
Trust, Minnesota Municipal Cash Trust (Cash
Series Shares and Institutional Shares),
Pennsylvania Municipal Cash Trust (Cash Series
Shares and Institutional Service Shares),
Virginia Municipal Cash Trust (Institutional
Service Shares and Institutional Shares), North
Carolina Municipal Cash Trust, Ohio Municipal
Cash Trust (Cash II Shares and Institutional
Shares), Massachusetts Municipal Cash Trust
(Institutional Service Shares and BayFunds
Shares), and New Jersey Municipal Cash Trust
(Institutional Shares and Institutional Service
Shares); (16)
(ii) Copy of Specimen Certificate for Maryland Municipal Cash Trust; (17)
(iii) Copy of Specimen Certificate for Florida Municipal Cash Trust; (20)
(iv) Copy of Specimen Certificate for Michigan Municipal Cash Trust; (24)
(v) Copy of Specimen Certificate for Pennsylvania Municipal Cash Trust
(Institutional Shares); (25)
(vi) Copy of Specimen Certificate for Georgia Municipal Cash Trust; (26)
(vii) Copy of Specimen Certificates for Tennessee Municipal Cash Trust
(Institutional Shares and Institutional Service Shares); (30) (viii) Copy of
Specimen Certificates for Pennsylvania Municipal Cash Trust and Connecticut
Municipal Cash Trust; (2) (ix) Copy of Specimen Certificate for Ohio
Municipal Cash Trust (Institutional Service Shares); (9)
- ----------------
2. Response is incorporated by reference to Registrants Pre-Effective
Amendment No. 1 on Form N-1A filed on October 31, 1989 (File Nos. 33-31259
and 811-5911).
9. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 10 on Form N-1A filed on January 24, 1991 (File Nos. 33-31259
and 811-5911).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed on December 29, 1993 (File Nos.
33-31259 and 811-5911).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on March 2, 1994 (File Nos. 33-31251
and 811-5911).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed on September 19, 1994 (File Nos.
33-31251 and 811-5911).
24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed on April 13, 1995 (File Nos. 33-31251
and 811-5911).
25. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed on May 19, 1995 (File Nos. 33-31251 and
811-5911).
26. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 36 on Form N-1A filed on May 31, 1995 (File Nos. 33-31259 and
811-5911).
30. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 42 on Form N-1A filed on February 29, 1996 (File Nos.
33-31251 and 811-5911).
<PAGE>
(x) Copy of Speciman Certificates for California Municipal Cash Trust
(Institutional Shares and Institutional Service Shares), Michigan
Municipal Cash Trust (Institutional Shares and Institutional Service
Shares), and Ohio Municipal Cash Trust (Institutional Shares and
Institutional Service Shares); (33)
(xi) Copy of Specimen Certificate for Arizona Municipal Cash Trust
(Institutional Service Shares); (34) (d) Conformed copy of Investment Advisory
Contract of the Registrant; (7)
(i) Conformed copies of exhibits to Investment Advisory Contract:
Exhibit G for Virginia Municipal Cash Trust; (18)
Exhibit H for Alabama Municipal Cash Trust; (19)
Exhibit I for North Carolina Municipal Cash Trust; (19)
Exhibit J for Maryland Municipal Cash Trust; (19)
Exhibit K for New York Municipal Cash Trust; (22)
Exhibit L for California Municipal Cash Trust; (22)
Exhibit M for Florida Municipal Cash Trust; (31)
Exhibit N for Georgia Municipal Cash Trust; (27)
Exhibit O for Michigan Municipal Cash Trust; (27)
Exhibit P for Tennessee Municipal Cash Trust;(31)
Exhibit Q for Arizona Municipal Cash Trust; (34)
(e) Conformed copy of Distributor's Contract of the registrant;(7) (i)
Conformed copies of exhibits to the Distributor's Contract:
Exhibit A for Massachusetts Municipal Cash Trust
(Institutional Service Shares); (9)
Exhibit B for Pennsylvania Municipal Cash Trust
(Institutional Service Shares); (9)
Exhibit C for Connecticut Municipal Cash Trust
(Institutional Service Shares); (9)
Exhibit D for Minnesota Municipal Cash Trust
(Institutional Shares); (9)
Exhibit E for New Jersey Municipal Cash Trust
(Institutional Shares); (31)
- --------------
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed on November 6, 1990 (File Nos. 33-31259
and 811-5911).
9. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 10 on Form N-1A filed on January 24, 1991 (File Nos. 33-31259
and 811-5911).
18. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 26 on Form N-1A filed on June 1, 1994 (File Nos. 33-31259 and
811-5911).
19. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 28 on Form N-1A filed on June 28, 1994 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 37 on Form N-1A filed on July 18, 1995 (File Nos. 33-31259
and 811-5911).
31. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 43 on Form N-1A filed November 29, 1996 (File Nos. 33-31259
and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 46 on Form N-1A filed March 16, 1998 (File Nos. 33-31259 and
811-5911).
<PAGE>
Exhibit F for New Jersey Municipal Cash Trust
(Institutional Service Shares; (31)
Exhibit G for Pennsylvania Municipal Cash Trust
(Cash Series Shares); (31)
Exhibit H does not exist;
Exhibit I for Minnesota Municipal Cash Trust
(Cash Series Shares); (31)
Exhibit J does not exist;
Exhibit K for Ohio Municipal Cash Trust
(Institutional Service Shares); (31)
Exhibit L for Ohio Municipal Cash Trust (Cash II Shares); (31)
Exhibit M; (22) Exhibit N for Virginia Municipal Cash Trust; (19)
Exhibit O for Alabama Municipal Cash Trust; (19) Exhibit P for North
Carolina Municipal Cash Trust; (19) Exhibit Q for Maryland Municipal
Cash Trust; (19) Exhibit R for New York Municipal Cash Trust (Cash
II Shares); (21) Exhibit S for New York Municipal Cash Trust
(Institutional Service Shares); (21) Exhibit T for California
Municipal Cash Trust; (21) Exhibit U for Florida Municipal Cash
Trust; (22) Exhibit W for Michigan Municipal Cash Trust; (27)
Exhibit X for Pennsylvania Municipal Cash Trust
(Institutional Shares); (27)
Exhibit Y for Florida Municipal Cash Trust (Cash II Shares); (29)
Exhibit Z for California Municipal Cash Trust
(Institutional Shares); (31)
Exhibit AA for Michigan Municipal Cash Trust
(Institutional Shares); (31)
Exhibit BB for Ohio Municipal Cash Trust
(Institutional Shares); (31)
Exhibit CC for Tennessee Municipal Cash Trust
(Institutional Shares); (31)
- -------------------------------
+ All exhibits have been filed electronically.
19. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 28 on Form N-1A filed on June 28, 1994(File Nos. 33-31259 and
811-5911).
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed on October 24, 1994 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos. 33-31259
and 811-5911).
27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 37 on Form N-1A filed on July 18, 1995 (File Nos. 33-31259 and
811-5911).
29 Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed on January 30, 1996. (File Nos.
33-31259 and 811-5911).
31. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 43 on Form N-1A filed November 29, 1996 (File Nos. 33-31259
and 811-5911).
<PAGE>
Exhibit DD for Tennessee Municipal Cash Trust
(Institutional Service Shares); (31)
Exhibit EE for Arizona Municipal Cash Trust
(Institutional Service Shares); (34)
(ii) The Registrant hereby incorporates the conformed copy of the specimen
Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement
and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)6 of the
Cash Trust Series II Registration Statement on Form N-1A, filed with the
Commission on July 24, 1995. (File Nos. 33-38550 and 811-6269);
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the Registrant; (22) (ii)
Copy of Exhibit 1 to the Custodian Agreement; (27) (iii) Conformed copy of
Custodian Fee Schedule; (33)
(h) (i) Conformed copy of Agreement for Fund Accounting, Shareholder
Recordkeeeping, and Custody Services Procurement; (31)
(ii) Conformed copy of Sub-Transfer Agency Agreement of the
Registrant (Massachusetts Municipal Cash Trust--1784 Fund
Shares only); (32)
(iii) Conformed copy of Shareholder Services Agreement of the
Registrant (Massachusetts Municipal Cash Trust--1784 Fund
Shares only); (15)
(iv) Conformed copy of Shareholder Services Agreement of the
Registrant; (22)
(v) Conformed copy of Amended and Restated Shareholder
Services Agreement; (33)
(vi) The response and exhibits described in Item 24(b)(6) are
hereby incorporated by reference;
(vii) Conformed copy of Administrative Services Agreement of
the Registrant; (22)
- ---------
+ All exhibits have been filed electronically.
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed on October 1, 1993 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 37 on Form N-1A filed on July 18, 1995 (File Nos. 33-31259
and 811-5911).
31. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 43 on Form N-1A filed on November 29, 1996 (File Nos.
33-31259 and 811-5911).
32. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed on December 23, 1996 (File Nos.
33-31259 and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 46 on Form N-1A filed on March 16, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
(viii)Form of Schwab Master Services Agreement (Ohio Municipal
Cash Trust-Cash II Shares only); (31)
(viv) Conformed copy of License Agreement (Massachusetts Municipal
Cash Trust-1784 Funds Shares only);(32)
(x) Conformed copy of Shareholder Services Agreement for Massachusetts
Municipal Cash Trust (Boston 1784 Funds Shares);(35) (i) Conformed copy of
Opinion and Consent of Counsel as to the legality of shares being registered;
(5) (j) Conformed copy of Consent of Independent Public Accountants; (33) (k)
Not applicable; (l) Conformed copy of Initial Capital Understanding; (2) (m) (i)
Copy of Rule 12b-1 Plan of the Registrant through and including Exhibit F (7);
Additional Exhibits to the Rule 12b-1 Plan have been
executed to reflect the coverage of subsequently created portfolios and/or
classes under these documents. Because these exhibits are substantially
identical but differ only as to the Fund name, dates, and any other Fund -
specific information, pursuant to Rule 8b- 31 of the Investment Company
Act they need not be filed.; (ii) Conformed copies of exhibits to 12b-1
Plan of the Registrant:
Exhibit G for Ohio Municipal Cash Trust
(Cash II Shares); (31)
Exhibit H for New York Municipal Cash Trust
(Cash II Shares);(21)
Exhibit I for New York Municipal Cash Trust
(Institutional Service Shares); (21)
Exhibit J for Florida Municipal Cash Trust; (22)
Exhibit K for Florida Municipal Cash Trust
(Cash II Shares); (29)
- ----------------------
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on October 31, 1989 (File Nos. 33-31259
and 811-5911).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed August 3, 1990 (File Nos. 33-31259 and
811-5911).
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed on October 24, 1994 (File Nos. 33-31259
and 811-5911).
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed on December 28, 1994 (File Nos.
33-31259 and 811-5911).
29. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed on January 30, 1996. (File Nos.
33-31259 and 811-5911).
31. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 43 on Form N-1A filed on November 29, 1996 (File Nos.
33-31259 and 811-5911).
32. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed on December 23, 1996 (File Nos.
33-31259 and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
35. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 47 on Form N-1A filed October 28, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
(iii) The response and exhibits described in Item 24 (b) (6) are hereby
incorporated by reference.
(n) Copy of Financial Data Schedules; (33)
(o) The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the Commission on January
26, 1996. (File Nos. 33-52149 and 811-07141);
(p) Conformed copy of Power of Attorney; (32)
(i) Amendment to Schedule 1 to Limited Power of Attorney dated March 1,
1998 (34).
Item 24. Persons Controlled by or Under Common Control with the Fund:
None
Item 25. Indemnification: (3)
Item 26. Business and Other Connections of the Investment Adviser:
For a description of the other business of the investment adviser, see the
section entitled "Who Manages the Fund" in Part A. The affiliations with the
Registrant of three of the Trustees and two of the Officers of the investment
adviser are included in Part B of this Registration Statement under "Who Manages
and Provides Services to the Fund." The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107
W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Peter R. Anderson
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
- ----------------------
3. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 1 on Form N-1A filed on March 22, 1990 (File Nos. 33-31259
and 811-5911).
32. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed on December 23, 1996 (File Nos.
33-31259 and 811-5911).
33. Response is incorporated by reference to Registrants Post-Effective
Amendment No. 45 on Form N-1A filed on December 19, 1997 (File Nos.
33-31259 and 811-5911).
34. Response is incorporated by reference to Registrant's Pre- Effective
Amendment No. 46 on Form N-1A filed on March 16, 1998 (File Nos. 33-31259
and 811-5911).
<PAGE>
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David F. Belton
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Marian R. Marinack
Sandra L. McInerney
Robert J. Ostrowski
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Robert M. Marsh
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779. These individuals are also officers of a majority of the investment
advisers to the investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
<PAGE>
Item 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end
investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust
Series, Inc.; CCB Funds; 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 Core Trust; 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 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.; Fixed Income
Securities, Inc.; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust
Funds; Tax-Free Instruments Trust; The Planters Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; High Yield Cash Trust;
Investment Series Trust; Peachtree Funds; Star Funds; Targeted
Duration Trust; The Virtus Funds; Trust for Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for
the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable
<PAGE>
Item 28. Location of Accounts and Records:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the
Agent for Service at above address.)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent ") Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Trustees and the calling of
special shareholder meetings by shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED MUNICIPAL TRUST, has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 3rd day of December, 1998.
FEDERATED MUNICIPAL TRUST
BY: /s/ Anthony R. Bosch
Anthony R. Bosch, Assistant Secretary
Attorney in Fact for John F. Donahue
December 3, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Anthony R. Bosch
Anthony R. Bosch Attorney In Fact December 3, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President and Trustee
John W. McGonigle* Secretary and Treasurer (Principal
Financial and Accounting
Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd, Esq.* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr., Esq.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr., J.D., S.J.D.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
