CONNECTICUT MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Connecticut Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Connecticut
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Connecticut, or its political subdivisions and financing authorities, but which
provide current income exempt from federal regular income tax and Connecticut
Dividend and Interest Income Tax consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December
31, 1997 TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights 2 General Information 3
Investment Information 3 Investment Objective 3 Investment Policies 3
Connecticut Municipal Securities 5 Investment Risks 5 Investment Limitations 5
Fund Information 6 Management of the Fund 6 Distribution of Institutional
Service Shares 6 Administration of the Fund 7 Net Asset Value 7 How to Purchase
Shares 7 Purchasing Shares Through a Financial Institution 7 Purchasing Shares
by Wire 7 Purchasing Shares by Check 8 Special Purchase Features 8 How to
Redeem Shares 8 Redeeming Shares Through a Financial Institution 8 Redeeming
Shares by Telephone 8 Redeeming Shares by Mail 8 Special Redemption Features 9
Account and Share Information 9 Dividends 9 Capital Gains 9 Confirmations and
Account Statements 9 Accounts with Low Balances 9 Voting Rights 9 Tax
Information 10 Federal Income Tax 10 State and Local Taxes 10 Performance
Information 10 Financial Statements 11 Report of Independent Public Accountants
Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.30%
12b-1 Fee None
Total Other Expenses 0.30%
Shareholder Services Fee (after waiver)(2) 0.14%
Total Operating Expenses(3) 0.60%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%
(2) The shareholder services fee has been reduced to reflect the voluntary
wavier of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%
(3) The total operating expenses would have been 0.91% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Fund Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $6
3 Years $19
5 Years $33
10 Years $75
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993** 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05
LESS DISTRIBUTIONS
Distributions from net (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05)
investment income
NET ASSET VALUE, END OF $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
PERIOD
TOTAL RETURN(B) 3.01% 3.02% 3.31% 2.12% 1.96% 2.68% 4.04% 5.54%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60% 0.60% 0.60% 0.59% 0.57% 0.56% 0.56% 0.48%*
Net investment income 2.97% 2.97% 3.26% 2.11% 1.95% 2.66% 3.94% 5.32%*
Expense 0.31% 0.32% 0.30% 0.18% 0.25% 0.30% 0.21% 0.28%*
waiver/reimbursement(c)
SUPPLEMENTAL DATA
Net assets, end of period $271,316 $227,089$184,718 $190,423 $140,446 $140,118$140,113 $138,738
(000 omitted)
</TABLE>
* Computed on an annualized basis.
** Prior to November 6, 1992, the Fund provided two classes of shares.
(a) Reflects operations for the period from November 1, 1989 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed primarily for financial institutions acting in
an agency or fiduciary capacity as a convenient means of accumulating an
interest in a professionally managed portfolio investing in short-term
Connecticut municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Connecticut taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $25,000 over
a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and Connecticut Dividend and Interest Income Tax consistent
with stability of principal. This investment objective cannot be changed without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by complying with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds and by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the Connecticut Dividend and
Interest Income Tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Connecticut and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Connecticut Dividend
and Interest Income Tax ("Connecticut Municipal Securities"). Examples of
Connecticut Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par.
The interest rate may float or be adjusted at regular intervals (ranging from
daily to annually), and is normally based on a published interest rate or
interest rate index. Most variable rate demand notes allow the Fund to demand
the repurchase of the security on not more than seven days prior notice. Other
notes only permit the Fund to tender the security at the time of each interest
rate adjustment or at other fixed intervals. See "Demand Features." The Fund
treats variable rate demand notes as maturing on the later of the date of the
next interest rate adjustment or the date on which the Fund may next tender the
security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Connecticut Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests, or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Connecticut Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of default
or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Connecticut
Municipal Securities is subject to the federal alternative minimum tax.
CONNECTICUT MUNICIPAL SECURITIES
Connecticut Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Connecticut Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Connecticut Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority.
Industrial development bonds are typically classified as revenue bonds.
INVESTMENT RISKS
Yields on Connecticut Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Connecticut Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Connecticut
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Connecticut Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Connecticut Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Connecticut Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Connecticut Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings. The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval. The
following limitation may be changed without shareholder approval. The Fund will
not invest more than 10% of the value of its net assets in illiquid securities
including repurchase agreements providing for settlement in more than seven days
after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion. ADVISER'S BACKGROUND Federated Management, a Delaware business
trust, organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All
of the Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide. Both
the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time, and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational, and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities from the value of Fund assets
and dividing the remainder by the number of Institutional Service Shares
outstanding. The Fund cannot guarantee that its net asset value will always
remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold
at their net asset value, without a sales charge, next determined after an order
is received, on days on which the New York Stock Exchange is open for business.
Shares may be purchased as described below, either through a financial
institution (such as a bank or broker/dealer), or by wire, or by check directly
from the Fund, with a minimum initial investment of $25,000 or more over a
90-day period. Financial institutions may impose different minimum investment
requirements on their customers. In connection with any sale, Federated
Securities Corp. may from time to time offer certain items of nominal value to
any shareholder or investor. The Fund reserves the right to reject any purchase
request. An account must be established at a financial institution or by
completing, signing, and returning the new account form available from the Fund
before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Connecticut
Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to Connecticut Municipal Cash
Trust--Institutional Service Shares. Please include an account number on the
check. Orders by mail are considered received when payment by check is converted
into federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above. The written
request should state: the Fund name and the class designation; the account name
as registered with the Fund; the account number; and the number of shares to be
redeemed or the dollar amount requested. All owners of the account must sign the
request exactly as the shares are registered. Normally, a check for the proceeds
is mailed within one business day, but in no event more than seven days, after
the receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights;
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust. As of
November 24, 1997, Fleet Securities Corp., Rochester, New York, owned 25.73% of
the voting securities of the Fund, and, therefore, may for certain purposes be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Connecticut. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
CONNECTICUT TAXES
Under existing Connecticut laws, distributions made by the Fund will not be
subject to Connecticut individual income taxes to the extent that such
distributions qualify as exempt interest dividends under the Internal Revenue
Code, and represent (i) interest on obligations issued by the district, or
similar public entity created under the laws of the State of Connecticut, and
(ii) interest on obligations the income of which may not, by federal law, be
taxed by a state, such as bonds issued by the government of Puerto Rico.
Conversely, to the extent that the distributions made by the Fund are derived
from other types of obligations, such dividends will be subject to Connecticut
individual income taxes.
Distributions from the Fund to a shareholder subject to the Connecticut
corporation business tax are not eligible for the dividends received deduction
under the Connecticut corporation business tax and therefore are included in the
taxable income of a taxpayer to the extent such distributions are treated as
either exempt-interest dividends or capital gains dividends for federal income
tax purposes. All other distributions from the Fund are eligible for the
Connecticut corporation business tax dividends received deduction.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
CONNECTICUT MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.4%
CONNECTICUT--86.0%
$ 6,000,000 Avon, CT, 3.75% BANs, 1/15/1998 $ 6,001,807
13,074,571 Clipper Connecticut Tax Exempt Trust, (Series 1994-1) Weekly 13,074,571
VRDNs (State Street Bank and Trust Co. LIQ)
2,160,000 Connecticut Development Authority Weekly VRDNs (Banta 2,160,000
Associates)/(Marine Midland Bank N.A., Buffalo, NY LOC)
600,000 Connecticut Development Authority Weekly VRDNs (Capital 600,000
District Energy Center)/ (Canadian Imperial Bank of Commerce,
Toronto LOC)
3,800,000 Connecticut Development Authority Weekly VRDNs (Capital 3,800,000
District Energy Center)/ (Canadian Imperial Bank of Commerce,
Toronto LOC)
1,172,400 Connecticut Development Authority Weekly VRDNs (RSA 1,172,400
Corp.)/(Barclays Bank PLC, London LOC)
830,000 Connecticut Development Authority, (Series 1985) Weekly VRDNs 830,000
(Martin-Brower Company Project)/(ABN AMRO Bank N.V.,
Amsterdam LOC)
2,200,000 Connecticut Development Authority, (Series 1986) Weekly VRDNs 2,200,000
(United Illuminating Co.)/ (Union Bank of Switzerland, Zurich
LOC)
10,500,000 Connecticut Development Authority, (Series 1996A) Weekly 10,500,000
VRDNs (Connecticut Light & Power Co.)/(AMBAC INS)/(Societe
Generale, Paris LIQ)
2,650,000 Connecticut Development Authority, (Series 1997) Weekly VRDNs 2,650,000
(Porcelen Ltd., CT LLC)/ (Star Bank, N.A., Cincinnati LOC)
8,000,000 Connecticut Development Authority, (Series 1997A) Weekly 8,000,000
VRDNs (Bradley Airport Hotel Project)/(Kredietbank N.V.,
Brussels LOC)
18,000,000 Connecticut Development Authority, (Series A) Weekly VRDNs 18,000,000
(Exeter Energy)/(Sanwa Bank Ltd., Osaka LOC)
1,000,000 Connecticut Development Authority, (Series B) Weekly VRDNs 1,000,000
(Exeter Energy)/(Sanwa Bank Ltd., Osaka LOC)
7,499,000 Connecticut Development Authority, (Series C) Weekly VRDNs 7,499,000
(Exeter Energy)/(Sanwa Bank Ltd., Osaka LOC)
4,500,000 Connecticut Development Authority, PCR (Series 1993A) Weekly 4,500,000
VRDNs (Western Mass Electric Co.)/(Union Bank of Switzerland,
Zurich LOC)
7,500,000 Connecticut Development Authority, PCR Refunding Bonds 7,500,000
(Series 1993B) Weekly VRDNs (Connecticut Light & Power
Co.)/(Union Bank of Switzerland, Zurich LOC)
905,000 Connecticut Development Health Care Facilities Weekly VRDNs 905,000
(Independence Living)/ (Chase Manhattan Bank N.A., New York
LOC)
5,300,000 Connecticut Development Health Care Facilities Weekly VRDNs 5,300,000
(Independence Living)/ (Credit Local de France LOC)
4,500,000 Connecticut Municipal Electric Energy Cooperative, Power 4,500,000
Supply System Revenue Bonds (1995 Series A), 3.65% CP (Fleet
National Bank, Providence, R.I. LOC), Mandatory Tender
1/9/1998
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
CONNECTICUT--CONTINUED
$ 4,500,000 Connecticut Municipal Electric Energy Cooperative, Power $ 4,500,000
Supply System Revenue Bonds (1995 Series A), 3.65% CP (Fleet
National Bank, Providence, R.I. LOC), Mandatory Tender
11/13/1997
1,600,000 Connecticut State HEFA Weekly VRDNs (Charlotte Hungerfield 1,600,000
Hospital)/(BankBoston, N.A. LOC)
3,400,000 Connecticut State HEFA, (Series A) Weekly VRDNs (Forman 3,400,000
School Issue)/(National Westminster Bank, PLC, London LOC)
6,500,000 Connecticut State HEFA, (Series B) Weekly VRDNs 6,500,000
(Edgehill)/(Banque Paribas, Paris LOC)
1,000,000 Connecticut State HEFA, Revenue Bonds (Series A) Weekly VRDNs 1,000,000
(Pomfret School Issue)/ (Credit Local de France LOC)
1,000,000 Connecticut State HEFA, Series A Weekly VRDNs (Sharon 1,000,000
Hospital)/(BankBoston, N.A. LOC)
7,000,000 Connecticut State HEFA, Series S, 3.60% CP (Yale University), 7,000,000
Mandatory Tender 11/10/1997
5,000,000 Connecticut State HEFA, Series S, 3.60% CP (Yale University), 5,000,000
Mandatory Tender 11/18/1997
2,000,000 Connecticut State HEFA, Series S, 3.70% CP (Yale University), 2,000,000
Mandatory Tender 1/15/1998
7,025,000 Connecticut State HFA, (Series 1990C), 3.90% CP (Morgan 7,025,000
Guaranty Trust Co., New York LIQ), Mandatory Tender
11/10/1997
3,245,000 Connecticut State HFA, (Series 1990D), 3.65% CP, Mandatory 3,245,000
Tender 12/16/1997
3,000,000 Connecticut State HFA, (Series 1990D), 3.75% CP, Mandatory 3,000,000
Tender 11/19/1997
2,405,000 Connecticut State HFA, (Series A), 7.00% Bonds, 11/15/1997 2,407,903
4,645,000 Connecticut State Resource Recovery Authority, (Series A), 4,647,755
5.30% Bonds, 11/15/1997
3,130,000 Connecticut State, 5.20% Bonds, 3/15/1998 3,147,891
3,000,000 Connecticut State, Special Assessment Second Injury Fund, 3,000,000
3.60% CP (Caisse Nationale De Credit Agricole, Paris and
Credit Communal de Belgique, Brussles LIQs), Mandatory Tender
11/17/1997
7,000,000 Connecticut State, Special Assessment Second Injury Fund, 7,000,000
3.70% CP (Caisse Nationale De Credit Agricole, Paris and
Credit Communal de Belgique, Brussles LIQs), Mandatory Tender
12/10/1997
12,000,000 Connecticut State, Special Assessment Unemployment 12,000,000
Compensation Advance Fund, Revenue Bonds (Series 1993C),
3.90% TOBs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ),
Mandatory Tender 7/1/1998
1,000,000 Connecticut State, UT GO, 4.30% Bonds, 3/15/1998 1,001,344
2,100,000 Connecticut State, UT GO, 5.00% Bonds, 12/15/1997 2,103,030
2,000,000 East Hartford, CT, 3.70% BANs, 1/26/1998 2,001,139
1,805,000 Haddam, CT, 3.85% Bonds (AMBAC INS), 7/15/1998 1,805,000
8,556,000 Hamden, CT, 4.00% BANs, 8/14/1998 8,568,907
11,900,000 Hartford, CT Redevelopment Authority Weekly VRDNs
(Underwood 11,900,000 Towers)/(FSA INS)/ (Barclays Bank
PLC, London LIQ)
5,075,000 Hartford, CT, 4.00% BANs, 1/29/1998 5,079,007
5,000,000 Meriden, CT, (Lot A), 3.90% BANs, 2/12/1998 5,002,730
</TABLE>
CONNECTICUT MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
CONNECTICUT--CONTINUED
$ 6,950,000 Meriden, CT, (Lot B), 4.00% BANs, 8/12/1998 $ 6,959,327
1,600,000 New Haven, CT Weekly VRDNs (Starter Sportswear)/(Fleet Bank. 1,600,000
N.A. LOC)
815,000 North Haven, CT, 5.50% Bonds, 9/1/1998 825,691
7,500,000 Stamford, CT Housing Authority, Multi-Modal Interchangeable 7,500,000
Rate Revenue Bonds (Series 1994) Weekly VRDNs (Morgan Street
Project)/(Deutsche Bank, AG LOC)
1,336,000 Thomaston, CT, 3.70% BANs, 2/19/1998 1,336,658
&NBSP;&NBSP;&NBSP;&NBSP;TOTAL 233,349,160
PUERTO RICO--13.4%
5,625,823 ABN AMRO Chicago Corp. 1997A LeaseTOPS Trust Weekly VRDNs 5,625,823
(Commonwealth of Puerto Rico Municipal Revenues Collection
Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/ (State Street
Bank and Trust Co. LOC)
5,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 5,000,000
Tender 12/11/1997
5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 5,000,000
Tender 1/14/1998
5,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 5,500,000
1988), 3.70% CP (Inter American University of Puerto
Rico)/(Bank of Tokyo-Mitsubishi Ltd. LOC), Mandatory Tender
12/10/1997
9,500,000 Puerto Rico Industrial, Tourist, Education, Medical & 9,500,000
Environmental Control Finance Authority, (Series 1994A),
3.85% CP (Inter American University of Puerto Rico)/(Banque
Paribas, Paris LOC), Mandatory Tender 12/12/1997
5,685,000 Puerto Rico Municipal Finance Agency, Revenue Bonds, Series 5,708,128
A, 4.50% Bonds, 7/1/1998
TOTAL 36,333,951
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 269,683,111
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 22.0% of the
portfolio as calculated based upon total portfolio market value.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
100% 0%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($271,316,342) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation
Notes CP --Commercial Paper FGIC --Financial Guaranty Insurance Company FSA
- --Financial Security Assurance GO --General Obligation HEFA --Health and
Education Facilities Authority HFA --Housing Finance Authority INS --Insured LIQ
- --Liquidity Agreement LLC --Limited Liability Corporation LOC --Letter of Credit
PCA --Pollution Control Authority PCR --Pollution Control Revenue PLC --Public
Limited Company TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable
Rate Demand Notes (See Notes which are an integral part of the Financial
Statements)
STATEMENT OF ASSETS AND LIABILITIES
CONNECTICUT MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 269,683,111
Cash 559,861
Income receivable 1,679,857
Total assets 271,922,829
LIABILITIES:
Payable for shares redeemed $ 30,233
Income distribution payable 507,537
Accrued expenses 68,717
Total liabilities 606,487
Net Assets for 271,316,429 shares outstanding $ 271,316,342
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$271,316,342 / 271,316,429 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
CONNECTICUT MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 9,423,263
EXPENSES:
Investment advisory fee $ 1,319,478
Administrative personnel and services fee 199,252
Custodian fees 17,268
Transfer and dividend disbursing agent fees and expenses 58,800
Directors'/Trustees' fees 3,607
Auditing fees 12,564
Legal fees 8,739
Portfolio accounting fees 67,654
Shareholder services fee 659,739
Share registration costs 30,855
Printing and postage 12,965
Insurance premiums 3,899
Taxes 795
Miscellaneous 5,839
Total expenses 2,401,454
Waivers --
Waiver of investment advisory fee $ (518,584)
Waiver of shareholder services fee (290,285)
Total waivers (808,869)
Net expenses 1,592,585
Net investment income $ 7,830,678
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
CONNECTICUT MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,830,678 $ 6,691,741
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (7,830,678) (6,691,741)
SHARE TRANSACTIONS--
Proceeds from sale of shares 889,231,384 636,539,589
Net asset value of shares issued to shareholders in payment of 2,819,845 2,096,326
distributions declared
Cost of shares redeemed (847,823,630) (596,265,388)
Change in net assets resulting from share transactions 44,227,599 42,370,527
Change in net assets 44,227,599 42,370,527
NET ASSETS:
Beginning of period 227,088,743 184,718,216
End of period $ 271,316,342 $ 227,088,743
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
CONNECTICUT MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Connecticut Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The investment objective of the Fund is current income exempt from federal
regular income tax and Connecticut dividend and interest income tax consistent
with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
October 31, 1997, capital paid-in aggregated $271,316,342.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996
<S> <C> <C>
Shares sold 889,231,384 636,539,589
Shares issued to shareholders in payment of distributions declared 2,819,845 2,096,326
Shares redeemed (847,823,630) (596,265,388)
Net change resulting from share transactions 44,227,599 42,370,527
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $395,458,125 and $419,570,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 57.3% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.8% of total investments. REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(CONNECTICUT MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
Connecticut Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
Prospectus
December 31, 1997
A Portfolio of Federated Municipal Trust, an
Open-End Management Investment Company
CONNECTICUT MUNICIPAL CASH TRUST
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
Cusip 314229105
9101004A-SS (12/97)
[Graphic]
CONNECTICUT MUNICIPAL CASH TRUST
INSTITUTIONAL SERVICE SHARES
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Connecticut Municipal Cash Trust (the "Fund"), a portfolio of Federated
Municipal Trust (the "Trust") dated December 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.
CONNECTICUT MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229105
9101004B-SS (12/97) [Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
CONNECTICUT INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
Selling Short and Buying on Margin 3
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Diversification of Investments 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Investing in Restricted Securities 3
Underwriting 3
Concentration of Investments 4
Investing in Illiquid Securities 4
Investing for Control 4
Investing in Options 4
Regulatory Compliance 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 4
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 10
SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 11
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 13
Total Return 13
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and
Bank Broker/Dealer Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment. In determining the liquidity of municipal lease securities,
the investment adviser, under the authority delegated by the Trustees, will base
its determination on the following factors: whether the lease can be terminated
by the lessee; the potential recovery, if any, from a sale of the leased
property upon termination of the lease; the lessee's general credit strength
(e.g., its debt, administrative, economic, and financial characteristics and
prospects); the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer deemed
essential to its operations (e.g., the potential for an "event of
non-appropriation"); and any credit enhancement or legal recourse provided upon
an event of non-appropriation or other termination of the lease. RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the
credit quality and ratings of credit-enhanced securities based upon the
financial condition and ratings of the party providing the credit enhancement
(the "credit enhancer"), rather than the issuer. However, credit-enhanced
securities will not be treated as having been issued by the credit enhancer for
diversification purposes unless the Fund has invested more than 10% of its
assets in securities issued, guaranteed, or otherwise credit enhanced by the
credit enhancer, in which case the securities will be treated as having been
issued by both the issuer and the credit enhancer. The Fund may have more than
25% of its total assets invested in securities credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
CONNECTICUT INVESTMENT RISKS
The Fund invests in obligations of Connecticut issuers which results in the
Fund's performance being subject to risks associated with the overall conditions
present within Connecticut (the "State"). The following information is a brief
summary of the recent prevailing economic conditions and a general summary of
the State's financial status. This information is based on official statements
related to securities that have been offered by Connecticut issuers and from
other sources believed to be reliable but should not be relied upon as a
complete description of all relevant information.
Based on per capita income, Connecticut is the wealthiest of all the states. The
State's exceptional wealth and resources are its primary source of credit
strength. Connecticut's economy is largely composed of service industries (such
as insurance and finance), retail and wholesale trade, and manufacturing
(concentrated in defense and transportation). In addition, the State is
headquarters for some major corporations and insurance firms. All of these
sectors were adversely impacted with the national recession in the early 1990s.
Between 1988 and 1992, Connecticut lost 9% of its total employment. The State
has experienced a slight recovery, however at a slower pace than the nation. It
is expected that a slower economic climate will persist in the near future.
Connecticut has a very high level of tax-supported debt. It ranks highest among
all states in terms of debt per capita, as well as debt service as a percentage
of revenues. In addition to tax-supported debt, Connecticut also has a large
unfunded pension liability, and a large unfunded liability in its state managed,
second injury, workers' compensation program.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for the clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed. The Fund will not borrow money for investment leverage, but
rather as a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings.
In those cases, it may pledge assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total assets at
the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
At the close of each quarter of each fiscal year, no more than 25% of the Fund's
total assets will be invested in the securities of a single issuer, but, with
regard to at least 50% of the Fund's total assets, no more than 5% of the Fund's
total assets are to be invested in securities of a single issuer.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, will be
considered a separate issuer if its assets and revenues are separate from those
of the government body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user. If in the
case of an industrial security, a governmental or other entity guarantees the
security, such guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions allowed by
the Investment Company Act of 1940.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
nonpublicly issued Connecticut municipal securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities, if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry, or
in industrial development bonds or other securities the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for settlement in
more than seven days notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board. As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc. SHARE
OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Connecticut Municipal Cash Trust Institutional
Service Shares: Fleet Securities Corp., Rochester, New York, owned approximately
74,164,586 shares (25.73%) and First Union National Bank, Charlotte, North
Carolina, owned approximately 42,348,196 shares (14.69%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,443 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $1,319,478, $1,125,360, and
$1,064,090, respectively, of which $518,584, $468,496, and $400,553,
respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and
dealers to handle the purchase and sale of portfolio instruments, the adviser
looks for prompt execution of the order at a favorable price. In working with
dealers, the adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines established
by the Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund or
to the adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the adviser or its
affiliates in advising the Fund and other accounts. To the extent that receipt
of these services may supplant services for which the adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. The adviser
and its affiliates exercise reasonable business judgment in selecting brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided. During the fiscal years ended October 31, 1997, 1996, and 1995, the
Fund paid no brokerage commissions. Although investment decisions for the Fund
are made independently from those of the other accounts managed by the adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the adviser
are prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. In other cases, however, it is believed
that coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $199,252, $170,171,
and $161,103, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to:
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will benefit
by: (1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, the Fund earned shareholder service
fees in the amount of $659,739, of which $369,454 was paid to financial
institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base-period return; and multiplying the base-period return by
365/7.
For the seven-day period ended October 31, 1997, the yield for Institutional
Service Shares was 3.05%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base-period
return by: adding 1 to the base-period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yield for
Institutional Service Shares was 3.10%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 44.10% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt. For the seven-day period ended October 31, 1997, the tax-equivalent
yield for Institutional Service Shares was 5.45%. TAX-EQUIVALENCY TABLE A
tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table on the next page indicates, a "tax-free"
investment can be an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields. <TABLE> <CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF CONNECTICUT
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE: 19.50% 32.50% 35.50% 40.50% 44.10%
JOINT $1 - $41,201 - $99,601 - $151,751 OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1 - $24,651 - $59,751 - $124,651 - OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions. For the one-year and
five-year periods ended October 31, 1997 and for the period from November 1,
1989 (date of initial public investment) through October 31, 1997, the average
annual total returns were 3.01%, 2.68%, and 3.20%, respectively, for
Institutional Service Shares. PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the money market sector, Federated Investors gained
prominence in the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered the use
of the amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money market
fund. As of December 31, 1996, Federated Investors managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime, and 21 municipal with assets approximating $28.0 billion, $12.8 billion,
and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1-- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus sign (+) designation.
SP-2-- Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1-- This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA-- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-- Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A-- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
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, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+-- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2-- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
PENNSYLVANIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Cash Series Shares
PROSPECTUS
The Cash Series Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term Pennsylvania municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of Pennsylvania, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and personal income taxes imposed by the
Commonwealth of Pennsylvania consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights -- Cash Series Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Cash Series Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 8
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 10
Tax Information 10
Federal Income Tax 10
State and Local Taxes 10
Other Classes of Shares 11
Performance Information 11
Financial Highlights -- Institutional Service Shares 12
Financial Highlights -- Institutional Shares 13
Financial Statements 14
Report of Independent Public Accountants 27
SUMMARY OF FUND EXPENSES
CASH SERIES SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1) 0.28%
12b-1 Fee (after waiver) (2) 0.35%
Total Other Expenses 0.42%
Shareholder Services Fee 0.25%
Total Operating Expenses (3) 1.05%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1
fee. The distributor can terminate this voluntary waiver at any time at its
sole discretion. The maximum 12b-1 fee is 0.40%.
(3) The total operating expenses would have been 1.32% absent the voluntary
waivers of portions of the management fee and 12b-1 fee.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITY DEALERS, INC.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Cash Series Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
- -----------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 11
3 Years $ 33
5 Years $ 58
10 Years $128
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.03
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 2.77% 2.75% 3.02% 1.84% 1.83% 2.67% 3.55%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 1.05% 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%*
- -------------------------------------------------
Net investment income 2.72% 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.27% 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $23,777 $19,825 $28,255 $18,352 $18,561 $24,694 $19,846
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Cash Series Shares,
Institutional Shares, and Institutional Service Shares. This prospectus relates
only to Cash Series Shares of the Fund, which are designed primarily for retail
customers of financial institutions as a convenient means of accumulating an
interest in a professionally managed portfolio investing in short-term
Pennsylvania municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Pennsylvania taxpayers because it invests in
municipal securities of that state. A minimum initial investment of $10,000 over
a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Pennsylvania dividend and
interest income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Pennsylvania and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Pennsylvania state
income tax, imposed upon non-corporate taxpayers ("Pennsylvania Municipal
Securities"). Examples of Pennsylvania Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through
a later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and pre-
refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Pennsylvania Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Pennsylvania Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Pennsylvania
Municipal Securities is subject to the federal alternative minimum tax.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Pennsylvania Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Pennsylvania Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Pennsylvania Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Pennsylvania Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Pennsylvania
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Pennsylvania Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Pennsylvania Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Pennsylvania Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to the risk considerations the Fund's
concentration in Pennsylvania Municipal Securities may entail a greater level of
risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings. The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval.
The following limitation may be changed without shareholder approval. The Fund
will not invest more than 10% of the value of its net assets in illiquid
securities including repurchase agreements providing for settlement in more than
seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF CASH SERIES SHARES
Federated Securities Corp. is the principal distributor for Cash Series
Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.40% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
-------- ------------------------------
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash Series
Shares from the value of Fund assets attributable to Cash Series Shares, and
dividing the remainder by the number of Cash Series Shares outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern
time) to place an order. The order is considered received immediately. Payment
by federal funds must be received before 3:00 p.m. (Eastern time) in order to
begin earning dividends that same day. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania Municipal Cash
Trust -- Cash Series Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to Pennsylvania Municipal Cash Trust -- Cash Series Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266- 8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Donnelly & Meck, counsel to the Trust, Fund shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Fund would be subject to such taxes if owned directly by residents of
those jurisdictions.
Because interest received by the Fund may not be exempt from all state and local
income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Fund. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
PENNSYLVANIA TAXES
Under existing Pennsylvania laws, distributions made by the Fund derived from
interest on obligations free from state taxation in Pennsylvania are not subject
to Pennsylvania personal income taxes. Distributions made by the Fund will be
subject to Pennsylvania personal income taxes to the extent that they are
derived from gain realized by the Fund from the sale or exchange of otherwise
tax-exempt obligations.
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Institutional Shares and
Institutional Service Shares. Institutional Shares are sold at net asset value
primarily to financial institutions acting in a fiduciary or agency capacity and
are subject to a minimum initial investment of $25,000 over a 90-day period.
Institutional Service Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary or agency capacity and are subject to a
minimum initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees.
Institutional Service Shares are distributed with no 12b-1 Plan but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield, tax-
equivalent yield, and total return. The performance figures will be calculated
separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990(A)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.05 0.05
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05)
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 3.18% 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.65% 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%*
- -------------------------------------------------
Net investment income 3.14% 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.27% 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $264,634 $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from Novemebr 21, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1996 1995(A)
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.01
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.01)
- ------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------
TOTAL RETURN(B) 3.38% 3.37% 1.03%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.45% 0.45% 0.45%*
- -------------------------------------------------
Net investment income 3.35% 3.27% 3.81%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.47% 0.47% 0.46%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $63,148 $37,076 $2,529
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 101.1%
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 101.1%
- -------------------------------------------------------------------------------------------------------------
$1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/
(Sanwa Bank Ltd., Osaka LOC) $1,000,000
----------------------------------------------------------------------------------------------
6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/(Barclays Bank PLC,
London LOC), Mandatory Tender 2/5/1998 6,500,000
----------------------------------------------------------------------------------------------
4,710,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly
VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,710,000
----------------------------------------------------------------------------------------------
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.85% TOBs (Duquesne Light Power Co.)/
(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 10/21/1998 5,000,000
----------------------------------------------------------------------------------------------
3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.70% CP (Toledo Edison Co.)/
(Toronto-Dominion Bank LOC), Mandatory Tender 12/4/1997 3,000,000
----------------------------------------------------------------------------------------------
5,800,000 Beaver County, PA IDA, PCRB's (Series 1990C), 3.75% CP (Duquesne Light Power Co.)/
(Barclays Bank PLC, London LOC), Mandatory Tender 12/1/1997 5,800,000
----------------------------------------------------------------------------------------------
4,000,000 Bedford County, PA IDA, (Series 1985) Weekly VRDNs (Sepa, Inc. Facility)/(First Union
National Bank, Charlotte, NC LOC) 4,000,000
----------------------------------------------------------------------------------------------
5,000,000 Bensalem Township School District, PA, 4.00% TRANs, 6/30/1998 5,000,927
----------------------------------------------------------------------------------------------
1,115,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid
Meats)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,115,000
----------------------------------------------------------------------------------------------
910,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/(Corestates
Bank N.A.,
Philadelphia, PA LOC) 910,000
----------------------------------------------------------------------------------------------
1,700,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,700,000
----------------------------------------------------------------------------------------------
3,550,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1996) Weekly VRDNs
(Ram Industries, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 3,550,000
----------------------------------------------------------------------------------------------
1,725,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,725,000
----------------------------------------------------------------------------------------------
345,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 345,000
----------------------------------------------------------------------------------------------
1,040,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 1,040,000
----------------------------------------------------------------------------------------------
1,015,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs
(Lebanon Valley Mall Co.)/(Meridian Bank, Reading, PA LOC) 1,015,000
----------------------------------------------------------------------------------------------
2,135,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics,
Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,135,000
----------------------------------------------------------------------------------------------
2,700,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania
Associates)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,700,000
----------------------------------------------------------------------------------------------
3,235,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 3,235,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$3,585,000 Bucks County, PA IDA, Variable Rate Demand/Fixed Rate Revenue Bonds (Series 1997)
Weekly VRDNs (Boekel Industries, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $3,585,000
----------------------------------------------------------------------------------------------
3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd,
Osaka LOC) 3,000,000
----------------------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd,
Osaka LOC) 1,000,000
----------------------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/
(Sanwa Bank Ltd, Osaka LOC) 1,000,000
----------------------------------------------------------------------------------------------
1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/
(Chase Manhattan Bank N.A., New York LOC) 1,400,000
----------------------------------------------------------------------------------------------
2,330,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc.
Project)/(ABN AMRO Bank N.V., Amsterdam LOC) 2,330,000
----------------------------------------------------------------------------------------------
2,250,000 Butler County, PA IDA, IDRB's (Series 1997) Weekly VRDNs (Wise Business Forms, Inc.)/
(SouthTrust Bank of Alabama, Birmingham LOC) 2,250,000
----------------------------------------------------------------------------------------------
11,400,000 Butler County, PA IDA, Variable Rate Demand Revenue Bonds (Series 1996A), 3.80%-4.25%
TOBs (Lutheran Welfare)/(PNC Bank, N.A. LOC), Mandatory Tender 11/3/1997-11/1/1998 11,400,172
----------------------------------------------------------------------------------------------
2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 2,400,000
----------------------------------------------------------------------------------------------
1,500,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 1,500,000
----------------------------------------------------------------------------------------------
2,500,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 2,500,000
----------------------------------------------------------------------------------------------
1,500,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/
(PNC Bank, N.A. LOC) 1,500,000
----------------------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, 3.75% CP (Panther Creek)/(National Westminster Bank, PLC, London
LOC), Mandatory Tender 12/17/1997 5,000,000
----------------------------------------------------------------------------------------------
1,290,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B), 3.80% CP (Panther Creek)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1998 1,290,000
----------------------------------------------------------------------------------------------
1,060,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B), 3.85% CP (Panther Creek)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/16/1997 1,060,000
----------------------------------------------------------------------------------------------
6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.75% CP (Panther Creek)/(National
Westminster Bank, PLC, London LOC), Mandatory Tender 12/12/1997 6,825,000
----------------------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1996), 3.90% RANs
(Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York LOC),
12/3/97 5,000,000
----------------------------------------------------------------------------------------------
3,174,280 Chartiers Valley Industrial & Commercial Development Authority, Nursing Home Revenue
Refunding Bonds (Series 1997A) Weekly VRDNs (Woodhaven Convalescent Center)/
(Bank One, Ohio, N.A. LOC) 3,174,280
----------------------------------------------------------------------------------------------
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 7,300,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA,
Pittsburgh LOC) $3,000,000
----------------------------------------------------------------------------------------------
1,300,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs
(Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000
----------------------------------------------------------------------------------------------
10,000,000 Cumberland County, PA Municipal Authority, Variable Rate Revenue Bonds (Series 1996 B),
3.75% TOBs (Dickinson College)/(Mellon Bank N.A., Pittsburgh LOC), Optional Tender 11/2/1998 10,000,000
----------------------------------------------------------------------------------------------
3,500,000 (b)Delaware Valley, PA Regional Finance Authority, PA-162 Weekly
VRDNs (AMBAC INS)/
(Merrill Lynch Capital Services, Inc. LIQ) 3,500,000
----------------------------------------------------------------------------------------------
4,400,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/
(Wachovia Bank of Georgia N.A., Atlanta LOC) 4,400,000
----------------------------------------------------------------------------------------------
6,250,000 East Hempfield Township, PA IDA, (Series of 1997) Weekly VRDNs (Mennonite Home)/
(Dauphin Deposit Bank and Trust LOC) 6,250,000
----------------------------------------------------------------------------------------------
3,500,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs (FGIC INS)/(FGIC Securities
Purchase, Inc. LIQ) 3,500,000
----------------------------------------------------------------------------------------------
2,900,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Mary's Hospital Erie, PA)/
(PNC Bank, N.A. LOC) 2,900,000
----------------------------------------------------------------------------------------------
1,000,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/
(Mellon Bank N.A., Pittsburgh LOC) 1,000,000
----------------------------------------------------------------------------------------------
200,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 200,000
----------------------------------------------------------------------------------------------
225,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) 225,000
----------------------------------------------------------------------------------------------
400,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000
----------------------------------------------------------------------------------------------
200,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank,
Cleveland, OH LOC) 200,000
----------------------------------------------------------------------------------------------
1,030,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) 1,030,000
----------------------------------------------------------------------------------------------
2,900,000 Franconia Township, PA IDA, IDRB's (Series 1997A) Weekly VRDNs
(Asher's Chocolates)/
(Mellon Bank N.A., Pittsburgh LOC) 2,900,000
----------------------------------------------------------------------------------------------
1,635,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/
(PNC Bank, N.A. LOC) 1,635,000
----------------------------------------------------------------------------------------------
5,000,000 Indiana County, PA IDA, Pollution Control Revenue Bonds (Series 1997A) Weekly VRDNs
(Peco Energy Co.)/(Union Bank of Switzerland, Zurich LOC) 5,000,000
----------------------------------------------------------------------------------------------
8,205,000 Lancaster, PA Higher Education Authority, (Series 1997) Weekly VRDNs (Franklin and
Marshall College Project)/(Chase Manhattan Bank N.A., New York LIQ) 8,205,000
----------------------------------------------------------------------------------------------
356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/
(KeyBank, N.A. LOC) 356,092
----------------------------------------------------------------------------------------------
4,640,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly VRDNs
(Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,640,000
----------------------------------------------------------------------------------------------
2,600,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/
(PNC Bank, N.A. LOC) 2,600,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$1,000,000 Lehigh County, PA IDA, Variable Rate Demand Revenue Bonds (Series 1997) Weekly VRDNs
(American Manufacturing Co., Inc.)/(Mellon Bank N.A., Pittsburgh LOC) $1,000,000
----------------------------------------------------------------------------------------------
6,840,000 McKean County, PA IDA, Economic Development Revenue Bonds (Series 1997)
Weekly VRDNs (Keystone Powdered Metal Co.)/(Mellon Bank N.A., Pittsburgh LOC) 6,840,000
----------------------------------------------------------------------------------------------
550,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford
Manor, Inc.)/(PNC Bank, N.A. LOC) 550,000
----------------------------------------------------------------------------------------------
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd.,
Osaka LOC) 3,300,000
----------------------------------------------------------------------------------------------
2,270,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly VRDNs
(Pottstown Healthcare Corporation Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,270,000
----------------------------------------------------------------------------------------------
3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton Co.)/
(First Union National Bank, Charlotte, NC LOC) 3,500,000
----------------------------------------------------------------------------------------------
1,200,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,200,000
----------------------------------------------------------------------------------------------
4,250,000 Montgomery County, PA IDA, (Series C) Weekly VRDNs (Vari Corp.)/(Dauphin Deposit Bank
and Trust LOC) 4,250,000
----------------------------------------------------------------------------------------------
6,675,000 Montgomery County, PA IDA, Commercial Development Revenue Bonds (Series 1992)
Weekly VRDNs (Hickory Pointe Project)/(First Union National Bank, Charlotte, N.C. LOC) 6,675,000
----------------------------------------------------------------------------------------------
2,140,000 Montgomery County, PA IDA, EDRB's (Series 1997) Weekly VRDNs (Palmer International, Inc.)/
(Mellon Bank N.A., Pittsburgh LOC) 2,140,000
----------------------------------------------------------------------------------------------
1,000,000 Montgomery County, PA IDA, Tax-Exempt Variable Rate Demand/Fixed Rate Revenue Bonds
(Series A of 1997) Weekly VRDNs (Vari Corp.)/(Dauphin Deposit Bank and Trust LOC) 1,000,000
----------------------------------------------------------------------------------------------
4,875,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 4,875,000
----------------------------------------------------------------------------------------------
1,110,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond
(Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 1,110,000
----------------------------------------------------------------------------------------------
361,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial
Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 361,000
----------------------------------------------------------------------------------------------
9,000,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 11/19/1997 9,000,000
----------------------------------------------------------------------------------------------
3,850,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 2/13/1998 3,850,000
----------------------------------------------------------------------------------------------
2,542,000 Northampton County, PA IDA, Variable Rate Revenue Bonds (Series 1997) Weekly VRDNs
(Ultra-Poly Corp.)/(PNC Bank, N.A. LOC) 2,542,000
----------------------------------------------------------------------------------------------
1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs
(Furman Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000
----------------------------------------------------------------------------------------------
1,725,000 Pennsylvania EDFA Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) 1,725,000
----------------------------------------------------------------------------------------------
2,700,000 Pennsylvania EDFA Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 2,700,000
----------------------------------------------------------------------------------------------
600,000 Pennsylvania EDFA Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) 600,000
----------------------------------------------------------------------------------------------
525,000 Pennsylvania EDFA Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) 525,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------- ----------------------------------------------------------------------------------------------
$575,000 Pennsylvania EDFA, (Series B) Weekly VRDNs (Payne Printing Co.)/(PNC Bank, N.A. LOC) $575,000
----------------------------------------------------------------------------------------------
2,890,000 Pennsylvania EDFA, Economic Development Revenue Bonds (Series 1996C) Weekly VRDNs
(Napco, Inc. Project)/(Mellon Bank N.A., Pittsburgh LOC) 2,890,000
----------------------------------------------------------------------------------------------
850,000 Pennsylvania EDFA, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/
(PNC Bank, N.A. LOC) 850,000
----------------------------------------------------------------------------------------------
275,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/
(PNC Bank, N.A. LOC) 275,000
----------------------------------------------------------------------------------------------
375,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (RAM Forest Products)/
(PNC Bank, N.A. LOC) 375,000
----------------------------------------------------------------------------------------------
7,430,000 (b)Pennsylvania Housing Finance Authority, Merlots (Series K) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LIQ) 7,430,000
----------------------------------------------------------------------------------------------
3,400,000 (b)Pennsylvania Housing Finance Authority, PT-119B(Series 1997-56B) Weekly VRDNs
(Credit Suisse First Boston, Inc. LIQ) 3,400,000
----------------------------------------------------------------------------------------------
940,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development
Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 940,000
----------------------------------------------------------------------------------------------
7,000,000 Pennsylvania State Higher Education Assistance Agency, Student Loan Adjustable Rate
Revenue Bonds (Series 1997A) Weekly VRDNs (Student Loan Marketing Association LOC) 7,000,000
----------------------------------------------------------------------------------------------
2,700,000 Philadelphia, PA IDA, Refunding Revenue Bonds (Series 1991) Weekly VRDNs
(Tom James Co.)/(SunTrust Bank, Nashville LOC) 2,700,000
----------------------------------------------------------------------------------------------
7,500,000 Philadelphia, PA School District, (Series 1997-1998), 4.50% TRANs (Commerzbank AG,
Frankfurt LOC), 6/30/1998 7,523,801
----------------------------------------------------------------------------------------------
3,250,000 Philadelphia, PA Water & Wastewater System, (CDC Series 1997Q)
Weekly VRDNs
(MBIA Insurance Corporation INS)/(CDC Municipal Products, Inc. LIQ) 3,250,000
----------------------------------------------------------------------------------------------
3,000,000 Philadelphia, PA, (Series A), 4.50% TRANs, 6/30/1998 3,009,521
----------------------------------------------------------------------------------------------
15,000,000 Philadelphia, PA, GO (Series 1990), 3.75% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
11/20/97 15,000,000
----------------------------------------------------------------------------------------------
5,000,000 Philadelphia, PA, Trust Receipts (Series 1997 FR/RI-11) Weekly VRDNs
(Bank of New York Co., Inc. LIQ) 5,000,000
----------------------------------------------------------------------------------------------
4,625,000 Red Lion, PA Area School District, (Series 1997/98), 4.11% TRANs, 6/30/1998 4,629,103
----------------------------------------------------------------------------------------------
1,900,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000
----------------------------------------------------------------------------------------------
2,000,000 Schuylkill County, PA IDA, Variable Rate Demand/Fixed Rate Manufacturing Facilities
Revenue Bonds (Series of 1996) Weekly VRDNs (Craftex Mills, Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,000,000
----------------------------------------------------------------------------------------------
2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.80% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/21/1998 2,100,000
----------------------------------------------------------------------------------------------
4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.85% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/16/1997 4,000,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$2,700,000 Washington County, PA Authority, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment
Lease Program)/(Sanwa Bank Ltd, Osaka LOC) $2,700,000
----------------------------------------------------------------------------------------------
10,700,000 Washington County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1995)
Weekly VRDNs (American Iron Oxide Co. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 10,700,000
----------------------------------------------------------------------------------------------
1,050,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA,
Pittsburgh LOC) 1,050,000
----------------------------------------------------------------------------------------------
2,000,000 West Allegheny, PA School District, 4.11% TRANs, 6/30/1998 2,001,391
----------------------------------------------------------------------------------------------
935,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995)
Weekly VRDNs (Lebanon Valley Brethern Home Project (PA))/(Corestates Bank N.A.,
Philadelphia, PA LOC) 935,000
----------------------------------------------------------------------------------------------
9,600,000 Westmoreland County, PA IDA, Guaranteed Variable Rate Revenue Bonds (Series of 1993)
Weekly VRDNs (USA Waste Services, Inc.)/(Fleet Bank. N.A. LOC) 9,600,000
----------------------------------------------------------------------------------------------
4,455,000 Westmoreland County, PA IDA, Revenue Bonds (Series 1997) Weekly VRDNs (Rhodin
Enterprises Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,455,000
----------------------------------------------------------------------------------------------
2,500,000 York County, PA IDA, Limited Obligation Revenue Bonds (Series 1997) Weekly VRDNs
(Metal Exchange Corp.)/(Comerica Bank, Detroit, MI LOC) 2,500,000
----------------------------------------------------------------------------------------------
2,750,000 York County, PA IDA, Variable Rate Demand Ltd Obligation Revenue Bonds (Series 1996)
Weekly VRDNs (Metal Exchange Corp.)/(Comerica Bank, Detroit, MI LOC) 2,750,000
----------------------------------------------------------------------------------------------
1,170,000 Yough School District, PA, Ltd Obligation Revenue Bonds, (Refunding Series 1997A), 4.35%
Bonds (Asset Guaranty INS), 4/1/1998 1,170,000
---------------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) 355,548,287
---------------------------------------------------------------------------------------------- ------------
</TABLE>
At October 31, 1997, 47.7% of the total investments at market value were subject
to alternative minimum tax.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
---------- ------------
98.59% 1.41%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $14,330,000 which represents 4.1% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($351,558,540) at October 31, 1997.
PENNSYLVANIA MUNICIPAL CASH TRUST
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation CGIC -- Capital Guaranty
Insurance Corporation CP -- Commercial Paper EDFA -- Economic Development
Financing Authority EDRB -- Economic Development Revenue Bonds FGIC -- Financial
Guaranty Insurance Company GO -- General Obligation IDA -- Industrial
Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured
LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond
Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited
Company RANs -- Revenue Anticipation Notes TOBs -- Tender Option Bonds TRANs --
Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $355,548,287
- ----------------------------------------------------------------------------------------
Cash 535,080
- ----------------------------------------------------------------------------------------
Income receivable 2,015,248
- ----------------------------------------------------------------------------------------
Receivable for shares sold 234,079
- ---------------------------------------------------------------------------------------- ------------
Total assets 358,332,694
- ----------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------
Payable for investments purchased $6,001,267
- ------------------------------------------------------------------------
Payable for shares redeemed 457
- ------------------------------------------------------------------------
Income distribution payable 663,292
- ------------------------------------------------------------------------
Accrued expenses 109,138
- ------------------------------------------------------------------------ ------------
Total liabilities 6,774,154
- ---------------------------------------------------------------------------------------- ------------
NET ASSETS for 351,558,540 shares outstanding $351,558,540
- ---------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ----------------------------------------------------------------------------------------
$264,633,554 (divided by) 264,633,554 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
CASH SERIES SHARES:
- ----------------------------------------------------------------------------------------
$23,776,931 (divided by) 23,776,931 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- ----------------------------------------------------------------------------------------
$63,148,055 (divided by) 63,148,055 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PENNSYLVANIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $12,660,361
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $1,666,725
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee 251,689
- ----------------------------------------------------------------------------------------
Custodian fees 27,705
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 82,035
- ----------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,082
- ----------------------------------------------------------------------------------------
Auditing fees 13,528
- ----------------------------------------------------------------------------------------
Legal fees 7,824
- ----------------------------------------------------------------------------------------
Portfolio accounting fees 103,245
- ----------------------------------------------------------------------------------------
Distribution services fee -- Cash Series Shares 90,728
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 649,440
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Cash Series Shares 56,705
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 127,217
- ----------------------------------------------------------------------------------------
Share registration costs 55,231
- ----------------------------------------------------------------------------------------
Printing and postage 29,498
- ----------------------------------------------------------------------------------------
Insurance premiums 5,299
- ----------------------------------------------------------------------------------------
Miscellaneous 6,147
- ---------------------------------------------------------------------------------------- ------------
Total expenses 3,176,098
- ----------------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------------
Waiver of investment advisory fee ($737,288)
- ------------------------------------------------------------------------
Waiver of distribution services fee -- Cash Series Shares (11,341)
- ------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (129,888)
- ------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Shares (127,217)
- ------------------------------------------------------------------------ ------------
Total waivers (1,005,734)
- ---------------------------------------------------------------------------------------- ------------
Net expenses 2,170,364
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income $10,489,997
- -------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PENNSYLVANIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS --
- ------------------------------------------------------------------------
Net investment income $10,489,997 $9,138,414
- ------------------------------------------------------------------------ -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ------------------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------------------
Institutional Service Shares (8,169,653) (7,961,058)
- ------------------------------------------------------------------------
Cash Series Shares (617,375) (504,436)
- ------------------------------------------------------------------------
Institutional Shares (1,702,969) (672,920)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets resulting from distributions to shareholders (10,489,997) (9,138,414)
- ------------------------------------------------------------------------ -------------- --------------
SHARE TRANSACTIONS --
- ------------------------------------------------------------------------
Proceeds from sale of shares 1,340,687,798 1,005,435,067
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 3,168,018 2,204,567
- ------------------------------------------------------------------------
Cost of shares redeemed (1,271,049,376) (1,036,079,299)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets resulting from share transactions 72,806,440 (28,439,665)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets 72,806,440 (28,439,665)
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period 278,752,100 307,191,765
- ------------------------------------------------------------------------ -------------- --------------
End of period $351,558,540 $278,752,100
- ------------------------------------------------------------------------ -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Pennsylvania Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash Series Shares and
Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of ("Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
- ---------------------------------------------- ----------- ------------
Delaware Valley, PA Regional Finance Authority 8/13/1997 $3,500,000
Pennsylvania Housing Finance Authority 10/16/1997 3,400,000
Pennsylvania Housing Finance Authority 7/21/1997 7,430,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
INSTITUTIONAL SERVICE SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Shares sold 1,052,427,056 859,300,895
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2,495,116 1,683,244
- ------------------------------------------------------------------------
Shares redeemed (1,012,139,333) (915,540,908)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Institutional Service Share transactions 42,782,839 (54,556,769)
- ------------------------------------------------------------------------ -------------- --------------
YEAR ENDED OCTOBER 31,
------------------------------
CASH SERIES SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
Shares sold 71,085,166 54,089,713
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 559,551 485,371
- ------------------------------------------------------------------------
Shares redeemed (67,692,672) (63,005,461)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Cash Series Share transactions 3,952,045 (8,430,377)
- ------------------------------------------------------------------------ -------------- --------------
YEAR ENDED OCTOBER 31,
------------------------------
INSTITUTIONAL SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
Shares sold 217,175,576 92,044,459
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 113,351 35,952
- ------------------------------------------------------------------------
Shares redeemed (191,217,371) (57,532,930)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Institutional Share transactions 26,071,556 34,547,481
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from share transactions 72,806,440 (28,439,665)
- ------------------------------------------------------------------------ -------------- --------------
</TABLE>
At October 31, 1997, capital paid-in aggregated $351,558,540.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Cash
Series Shares. The Plan provides that the Fund may incur distribution expenses
up to 0.40% of the average daily net assets of the Cash Series Shares, annually
to compensate FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $596,236,000 and $628,663,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 86% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 12% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(PENNSYLVANIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1997, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2, 12 and 13 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1997, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
Pennsylvania
Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Cash Series Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
PENNSYLVANIA
MUNICIPAL CASH TRUST
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229881
9101005A-CS (12/97)
[RECYCLE LOGO]
RECYCLED PAPER
Pennsylvania Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Pennsylvania Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Pennsylvania
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Pennsylvania, or its political subdivisions and financing authorities, but which
provide current income exempt from federal regular income tax and personal
income taxes imposed by the Commonwealth of Pennsylvania consistent with
stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights -- Institutional Service Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Instituion 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 10
Federal Income Tax 10
State and Local Tax 10
Other Classes of Shares 10
Performance Information 10
Financial Highlights -- Cash Series Shares 12
Financial Highlights -- Institutional Shares 13
Financial Statements 14
Report of Independent Public Accountants 27
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.28%
12b-1 Fee None
Total Other Expenses 0.37%
Shareholder Services Fee (after waiver)(2) 0.20%
Total Operating Expenses(3) 0.65%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.92% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C>
1 Year $7
3 Years $21
5 Years $36
10 Years $81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
</TABLE>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990(A)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.05 0.05
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05)
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 3.18% 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.65% 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%*
- -------------------------------------------------
Net investment income 3.14% 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.27% 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $264,634 $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from Novemebr 21, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Service
Shares, Cash Series Shares, and Institutional Shares. This prospectus relates
only to Institutional Service Shares of the Fund, which are designed primarily
for financial institutions acting in a fiduciary or agency capacity as a
convenient means of accumulating an interest in a professionally managed
portfolio investing in Pennsylvania short-term municipal securities. The Fund
may not be a suitable investment for retirement plans or for non- Pennsylvania
taxpayers because it invests in municipal securities of that state. A minimum
initial investment of $25,000 over a 90-day period is required. The Fund
attempts to stabilize the value of a share at $1.00. Shares are currently sold
and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus. INVESTMENT
POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Pennsylvania dividend and
interest income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Pennsylvania and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Pennsylvania state
income tax, imposed upon noncorporate taxpayers ("Pennsylvania Municipal
Securities"). Examples of Pennsylvania Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and pre-
refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Pennsylvania Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Pennsylvania Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price). Although the Fund is permitted to make taxable,
temporary investments, there is no current intention to do so. However, the
interest from certain Pennsylvania Municipal Securities is subject to the
federal alternative minimum tax.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Pennsylvania Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Pennsylvania Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Pennsylvania Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Pennsylvania Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Pennsylvania
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Pennsylvania Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Pennsylvania Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Pennsylvania Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to the risk considerations the Fund's
concentration in Pennsylvania Municipal Securities may entail a greater level of
risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings. The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval.
The following limitation may be changed without shareholder approval. The Fund
will not invest more than 10% of the value of its net assets in illiquid
securities including repurchase agreements providing for settlement in more than
seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors. Federated Management and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. With over $110 billion invested
across more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the largest
mutual fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
FEE NET ASSETS
------------ ------------------------------------
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania
Municipal Cash Trust -- Institutional Service Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Pennsylvania Municipal Cash Trust -- Institutional Service Shares. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266- 8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Donnelly & Meck, counsel to the Trust, Fund shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Fund would be subject to such taxes if owned directly by residents of
those jurisdictions.
Because interest received by the Fund may not be exempt from all state and local
income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Fund. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
PENNSYLVANIA TAXES
Under existing Pennsylvania laws, distributions made by the Fund derived from
interest on obligations free from state taxation in Pennsylvania are not subject
to Pennsylvania personal income taxes. Distributions made by the Fund will be
subject to Pennsylvania personal income taxes to the extent that they are
derived from gain realized by the Fund from the sale or exchange of otherwise
tax-exempt obligations.
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Institutional Shares and
Cash Series Shares. Institutional Shares are sold at net asset value primarily
to financial institutions acting in a fiduciary or agency capacity and are
subject to a minimum initial investment of $25,000 over a 90-day period. Cash
Series Shares are sold at net asset value primarily to retail customers of
financial institutions and are subject to a minimum initial investment of
$10,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees.
Cash Series Shares are distributed under a 12b-1 Plan adopted by the Fund and
also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield, tax-
equivalent yield, and total return. The performance figures will be calculated
separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.03
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 2.77% 2.75% 3.02% 1.84% 1.83% 2.67% 3.55%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 1.05% 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%*
- -------------------------------------------------
Net investment income 2.72% 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.27% 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $23,777 $19,825 $28,255 $18,352 $18,561 $24,694 $19,846
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1996 1995(A)
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.01
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.01)
- ------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------
TOTAL RETURN(B) 3.38% 3.37% 1.03%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.45% 0.45% 0.45%*
- -------------------------------------------------
Net investment income 3.35% 3.27% 3.81%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.47% 0.47% 0.46%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $63,148 $37,076 $2,529
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 101.1%
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 101.1%
- -------------------------------------------------------------------------------------------------------------
$1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/
(Sanwa Bank Ltd., Osaka LOC) $1,000,000
----------------------------------------------------------------------------------------------
6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/(Barclays Bank PLC,
London LOC), Mandatory Tender 2/5/1998 6,500,000
----------------------------------------------------------------------------------------------
4,710,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly
VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,710,000
----------------------------------------------------------------------------------------------
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.85% TOBs (Duquesne Light Power Co.)/
(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 10/21/1998 5,000,000
----------------------------------------------------------------------------------------------
3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.70% CP (Toledo Edison Co.)/
(Toronto-Dominion Bank LOC), Mandatory Tender 12/4/1997 3,000,000
----------------------------------------------------------------------------------------------
5,800,000 Beaver County, PA IDA, PCRB's (Series 1990C), 3.75% CP (Duquesne Light Power Co.)/
(Barclays Bank PLC, London LOC), Mandatory Tender 12/1/1997 5,800,000
----------------------------------------------------------------------------------------------
4,000,000 Bedford County, PA IDA, (Series 1985) Weekly VRDNs (Sepa, Inc. Facility)/(First Union
National Bank, Charlotte, NC LOC) 4,000,000
----------------------------------------------------------------------------------------------
5,000,000 Bensalem Township School District, PA, 4.00% TRANs, 6/30/1998 5,000,927
----------------------------------------------------------------------------------------------
1,115,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid
Meats)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,115,000
----------------------------------------------------------------------------------------------
910,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/(Corestates
Bank N.A.,
Philadelphia, PA LOC) 910,000
----------------------------------------------------------------------------------------------
1,700,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,700,000
----------------------------------------------------------------------------------------------
3,550,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1996) Weekly VRDNs
(Ram Industries, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 3,550,000
----------------------------------------------------------------------------------------------
1,725,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,725,000
----------------------------------------------------------------------------------------------
345,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 345,000
----------------------------------------------------------------------------------------------
1,040,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 1,040,000
----------------------------------------------------------------------------------------------
1,015,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs
(Lebanon Valley Mall Co.)/(Meridian Bank, Reading, PA LOC) 1,015,000
----------------------------------------------------------------------------------------------
2,135,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics,
Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,135,000
----------------------------------------------------------------------------------------------
2,700,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania
Associates)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,700,000
----------------------------------------------------------------------------------------------
3,235,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 3,235,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$3,585,000 Bucks County, PA IDA, Variable Rate Demand/Fixed Rate Revenue Bonds (Series 1997)
Weekly VRDNs (Boekel Industries, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $3,585,000
----------------------------------------------------------------------------------------------
3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd,
Osaka LOC) 3,000,000
----------------------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd,
Osaka LOC) 1,000,000
----------------------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/
(Sanwa Bank Ltd, Osaka LOC) 1,000,000
----------------------------------------------------------------------------------------------
1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/
(Chase Manhattan Bank N.A., New York LOC) 1,400,000
----------------------------------------------------------------------------------------------
2,330,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc.
Project)/(ABN AMRO Bank N.V., Amsterdam LOC) 2,330,000
----------------------------------------------------------------------------------------------
2,250,000 Butler County, PA IDA, IDRB's (Series 1997) Weekly VRDNs (Wise Business Forms, Inc.)/
(SouthTrust Bank of Alabama, Birmingham LOC) 2,250,000
----------------------------------------------------------------------------------------------
11,400,000 Butler County, PA IDA, Variable Rate Demand Revenue Bonds (Series 1996A), 3.80%-4.25%
TOBs (Lutheran Welfare)/(PNC Bank, N.A. LOC), Mandatory Tender 11/3/1997-11/1/1998 11,400,172
----------------------------------------------------------------------------------------------
2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 2,400,000
----------------------------------------------------------------------------------------------
1,500,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 1,500,000
----------------------------------------------------------------------------------------------
2,500,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 2,500,000
----------------------------------------------------------------------------------------------
1,500,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/
(PNC Bank, N.A. LOC) 1,500,000
----------------------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, 3.75% CP (Panther Creek)/(National Westminster Bank, PLC, London
LOC), Mandatory Tender 12/17/1997 5,000,000
----------------------------------------------------------------------------------------------
1,290,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B), 3.80% CP (Panther Creek)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1998 1,290,000
----------------------------------------------------------------------------------------------
1,060,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B), 3.85% CP (Panther Creek)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/16/1997 1,060,000
----------------------------------------------------------------------------------------------
6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.75% CP (Panther Creek)/(National
Westminster Bank, PLC, London LOC), Mandatory Tender 12/12/1997 6,825,000
----------------------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1996), 3.90% RANs
(Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York LOC),
12/3/97 5,000,000
----------------------------------------------------------------------------------------------
3,174,280 Chartiers Valley Industrial & Commercial Development Authority, Nursing Home Revenue
Refunding Bonds (Series 1997A) Weekly VRDNs (Woodhaven Convalescent Center)/
(Bank One, Ohio, N.A. LOC) 3,174,280
----------------------------------------------------------------------------------------------
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 7,300,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA,
Pittsburgh LOC) $3,000,000
----------------------------------------------------------------------------------------------
1,300,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs
(Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000
----------------------------------------------------------------------------------------------
10,000,000 Cumberland County, PA Municipal Authority, Variable Rate Revenue Bonds (Series 1996 B),
3.75% TOBs (Dickinson College)/(Mellon Bank N.A., Pittsburgh LOC), Optional Tender 11/2/1998 10,000,000
----------------------------------------------------------------------------------------------
3,500,000 (b)Delaware Valley, PA Regional Finance Authority, PA-162 Weekly
VRDNs (AMBAC INS)/
(Merrill Lynch Capital Services, Inc. LIQ) 3,500,000
----------------------------------------------------------------------------------------------
4,400,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/
(Wachovia Bank of Georgia N.A., Atlanta LOC) 4,400,000
----------------------------------------------------------------------------------------------
6,250,000 East Hempfield Township, PA IDA, (Series of 1997) Weekly VRDNs (Mennonite Home)/
(Dauphin Deposit Bank and Trust LOC) 6,250,000
----------------------------------------------------------------------------------------------
3,500,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs (FGIC INS)/(FGIC Securities
Purchase, Inc. LIQ) 3,500,000
----------------------------------------------------------------------------------------------
2,900,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Mary's Hospital Erie, PA)/
(PNC Bank, N.A. LOC) 2,900,000
----------------------------------------------------------------------------------------------
1,000,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/
(Mellon Bank N.A., Pittsburgh LOC) 1,000,000
----------------------------------------------------------------------------------------------
200,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 200,000
----------------------------------------------------------------------------------------------
225,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) 225,000
----------------------------------------------------------------------------------------------
400,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000
----------------------------------------------------------------------------------------------
200,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank,
Cleveland, OH LOC) 200,000
----------------------------------------------------------------------------------------------
1,030,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) 1,030,000
----------------------------------------------------------------------------------------------
2,900,000 Franconia Township, PA IDA, IDRB's (Series 1997A) Weekly VRDNs
(Asher's Chocolates)/
(Mellon Bank N.A., Pittsburgh LOC) 2,900,000
----------------------------------------------------------------------------------------------
1,635,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/
(PNC Bank, N.A. LOC) 1,635,000
----------------------------------------------------------------------------------------------
5,000,000 Indiana County, PA IDA, Pollution Control Revenue Bonds (Series 1997A) Weekly VRDNs
(Peco Energy Co.)/(Union Bank of Switzerland, Zurich LOC) 5,000,000
----------------------------------------------------------------------------------------------
8,205,000 Lancaster, PA Higher Education Authority, (Series 1997) Weekly VRDNs (Franklin and
Marshall College Project)/(Chase Manhattan Bank N.A., New York LIQ) 8,205,000
----------------------------------------------------------------------------------------------
356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/
(KeyBank, N.A. LOC) 356,092
----------------------------------------------------------------------------------------------
4,640,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly VRDNs
(Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,640,000
----------------------------------------------------------------------------------------------
2,600,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/
(PNC Bank, N.A. LOC) 2,600,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$1,000,000 Lehigh County, PA IDA, Variable Rate Demand Revenue Bonds (Series 1997) Weekly VRDNs
(American Manufacturing Co., Inc.)/(Mellon Bank N.A., Pittsburgh LOC) $1,000,000
----------------------------------------------------------------------------------------------
6,840,000 McKean County, PA IDA, Economic Development Revenue Bonds (Series 1997)
Weekly VRDNs (Keystone Powdered Metal Co.)/(Mellon Bank N.A., Pittsburgh LOC) 6,840,000
----------------------------------------------------------------------------------------------
550,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford
Manor, Inc.)/(PNC Bank, N.A. LOC) 550,000
----------------------------------------------------------------------------------------------
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd.,
Osaka LOC) 3,300,000
----------------------------------------------------------------------------------------------
2,270,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly VRDNs
(Pottstown Healthcare Corporation Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,270,000
----------------------------------------------------------------------------------------------
3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton Co.)/
(First Union National Bank, Charlotte, NC LOC) 3,500,000
----------------------------------------------------------------------------------------------
1,200,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,200,000
----------------------------------------------------------------------------------------------
4,250,000 Montgomery County, PA IDA, (Series C) Weekly VRDNs (Vari Corp.)/(Dauphin Deposit Bank
and Trust LOC) 4,250,000
----------------------------------------------------------------------------------------------
6,675,000 Montgomery County, PA IDA, Commercial Development Revenue Bonds (Series 1992)
Weekly VRDNs (Hickory Pointe Project)/(First Union National Bank, Charlotte, N.C. LOC) 6,675,000
----------------------------------------------------------------------------------------------
2,140,000 Montgomery County, PA IDA, EDRB's (Series 1997) Weekly VRDNs (Palmer International, Inc.)/
(Mellon Bank N.A., Pittsburgh LOC) 2,140,000
----------------------------------------------------------------------------------------------
1,000,000 Montgomery County, PA IDA, Tax-Exempt Variable Rate Demand/Fixed Rate Revenue Bonds
(Series A of 1997) Weekly VRDNs (Vari Corp.)/(Dauphin Deposit Bank and Trust LOC) 1,000,000
----------------------------------------------------------------------------------------------
4,875,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 4,875,000
----------------------------------------------------------------------------------------------
1,110,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond
(Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 1,110,000
----------------------------------------------------------------------------------------------
361,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial
Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 361,000
----------------------------------------------------------------------------------------------
9,000,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 11/19/1997 9,000,000
----------------------------------------------------------------------------------------------
3,850,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 2/13/1998 3,850,000
----------------------------------------------------------------------------------------------
2,542,000 Northampton County, PA IDA, Variable Rate Revenue Bonds (Series 1997) Weekly VRDNs
(Ultra-Poly Corp.)/(PNC Bank, N.A. LOC) 2,542,000
----------------------------------------------------------------------------------------------
1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs
(Furman Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000
----------------------------------------------------------------------------------------------
1,725,000 Pennsylvania EDFA Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) 1,725,000
----------------------------------------------------------------------------------------------
2,700,000 Pennsylvania EDFA Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 2,700,000
----------------------------------------------------------------------------------------------
600,000 Pennsylvania EDFA Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) 600,000
----------------------------------------------------------------------------------------------
525,000 Pennsylvania EDFA Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) 525,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------- ----------------------------------------------------------------------------------------------
$575,000 Pennsylvania EDFA, (Series B) Weekly VRDNs (Payne Printing Co.)/(PNC Bank, N.A. LOC) $575,000
----------------------------------------------------------------------------------------------
2,890,000 Pennsylvania EDFA, Economic Development Revenue Bonds (Series 1996C) Weekly VRDNs
(Napco, Inc. Project)/(Mellon Bank N.A., Pittsburgh LOC) 2,890,000
----------------------------------------------------------------------------------------------
850,000 Pennsylvania EDFA, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/
(PNC Bank, N.A. LOC) 850,000
----------------------------------------------------------------------------------------------
275,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/
(PNC Bank, N.A. LOC) 275,000
----------------------------------------------------------------------------------------------
375,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (RAM Forest Products)/
(PNC Bank, N.A. LOC) 375,000
----------------------------------------------------------------------------------------------
7,430,000 (b)Pennsylvania Housing Finance Authority, Merlots (Series K) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LIQ) 7,430,000
----------------------------------------------------------------------------------------------
3,400,000 (b)Pennsylvania Housing Finance Authority, PT-119B(Series 1997-56B) Weekly VRDNs
(Credit Suisse First Boston, Inc. LIQ) 3,400,000
----------------------------------------------------------------------------------------------
940,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development
Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 940,000
----------------------------------------------------------------------------------------------
7,000,000 Pennsylvania State Higher Education Assistance Agency, Student Loan Adjustable Rate
Revenue Bonds (Series 1997A) Weekly VRDNs (Student Loan Marketing Association LOC) 7,000,000
----------------------------------------------------------------------------------------------
2,700,000 Philadelphia, PA IDA, Refunding Revenue Bonds (Series 1991) Weekly VRDNs
(Tom James Co.)/(SunTrust Bank, Nashville LOC) 2,700,000
----------------------------------------------------------------------------------------------
7,500,000 Philadelphia, PA School District, (Series 1997-1998), 4.50% TRANs (Commerzbank AG,
Frankfurt LOC), 6/30/1998 7,523,801
----------------------------------------------------------------------------------------------
3,250,000 Philadelphia, PA Water & Wastewater System, (CDC Series 1997Q)
Weekly VRDNs
(MBIA Insurance Corporation INS)/(CDC Municipal Products, Inc. LIQ) 3,250,000
----------------------------------------------------------------------------------------------
3,000,000 Philadelphia, PA, (Series A), 4.50% TRANs, 6/30/1998 3,009,521
----------------------------------------------------------------------------------------------
15,000,000 Philadelphia, PA, GO (Series 1990), 3.75% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
11/20/97 15,000,000
----------------------------------------------------------------------------------------------
5,000,000 Philadelphia, PA, Trust Receipts (Series 1997 FR/RI-11) Weekly VRDNs
(Bank of New York Co., Inc. LIQ) 5,000,000
----------------------------------------------------------------------------------------------
4,625,000 Red Lion, PA Area School District, (Series 1997/98), 4.11% TRANs, 6/30/1998 4,629,103
----------------------------------------------------------------------------------------------
1,900,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000
----------------------------------------------------------------------------------------------
2,000,000 Schuylkill County, PA IDA, Variable Rate Demand/Fixed Rate Manufacturing Facilities
Revenue Bonds (Series of 1996) Weekly VRDNs (Craftex Mills, Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,000,000
----------------------------------------------------------------------------------------------
2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.80% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/21/1998 2,100,000
----------------------------------------------------------------------------------------------
4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.85% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/16/1997 4,000,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$2,700,000 Washington County, PA Authority, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment
Lease Program)/(Sanwa Bank Ltd, Osaka LOC) $2,700,000
----------------------------------------------------------------------------------------------
10,700,000 Washington County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1995)
Weekly VRDNs (American Iron Oxide Co. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 10,700,000
----------------------------------------------------------------------------------------------
1,050,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA,
Pittsburgh LOC) 1,050,000
----------------------------------------------------------------------------------------------
2,000,000 West Allegheny, PA School District, 4.11% TRANs, 6/30/1998 2,001,391
----------------------------------------------------------------------------------------------
935,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995)
Weekly VRDNs (Lebanon Valley Brethern Home Project (PA))/(Corestates Bank N.A.,
Philadelphia, PA LOC) 935,000
----------------------------------------------------------------------------------------------
9,600,000 Westmoreland County, PA IDA, Guaranteed Variable Rate Revenue Bonds (Series of 1993)
Weekly VRDNs (USA Waste Services, Inc.)/(Fleet Bank. N.A. LOC) 9,600,000
----------------------------------------------------------------------------------------------
4,455,000 Westmoreland County, PA IDA, Revenue Bonds (Series 1997) Weekly VRDNs (Rhodin
Enterprises Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,455,000
----------------------------------------------------------------------------------------------
2,500,000 York County, PA IDA, Limited Obligation Revenue Bonds (Series 1997) Weekly VRDNs
(Metal Exchange Corp.)/(Comerica Bank, Detroit, MI LOC) 2,500,000
----------------------------------------------------------------------------------------------
2,750,000 York County, PA IDA, Variable Rate Demand Ltd Obligation Revenue Bonds (Series 1996)
Weekly VRDNs (Metal Exchange Corp.)/(Comerica Bank, Detroit, MI LOC) 2,750,000
----------------------------------------------------------------------------------------------
1,170,000 Yough School District, PA, Ltd Obligation Revenue Bonds, (Refunding Series 1997A), 4.35%
Bonds (Asset Guaranty INS), 4/1/1998 1,170,000
---------------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) 355,548,287
---------------------------------------------------------------------------------------------- ------------
</TABLE>
At October 31, 1997, 47.7% of the total investments at market value were subject
to alternative minimum tax.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
---------- ------------
98.59% 1.41%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $14,330,000 which represents 4.1% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($351,558,540) at October 31, 1997.
PENNSYLVANIA MUNICIPAL CASH TRUST
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation CGIC -- Capital Guaranty
Insurance Corporation CP -- Commercial Paper EDFA -- Economic Development
Financing Authority EDRB -- Economic Development Revenue Bonds FGIC -- Financial
Guaranty Insurance Company GO -- General Obligation IDA -- Industrial
Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured
LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond
Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited
Company RANs -- Revenue Anticipation Notes TOBs -- Tender Option Bonds TRANs --
Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $355,548,287
- ----------------------------------------------------------------------------------------
Cash 535,080
- ----------------------------------------------------------------------------------------
Income receivable 2,015,248
- ----------------------------------------------------------------------------------------
Receivable for shares sold 234,079
- ---------------------------------------------------------------------------------------- ------------
Total assets 358,332,694
- ----------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------
Payable for investments purchased $6,001,267
- ------------------------------------------------------------------------
Payable for shares redeemed 457
- ------------------------------------------------------------------------
Income distribution payable 663,292
- ------------------------------------------------------------------------
Accrued expenses 109,138
- ------------------------------------------------------------------------ ------------
Total liabilities 6,774,154
- ---------------------------------------------------------------------------------------- ------------
NET ASSETS for 351,558,540 shares outstanding $351,558,540
- ---------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ----------------------------------------------------------------------------------------
$264,633,554 (divided by) 264,633,554 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
CASH SERIES SHARES:
- ----------------------------------------------------------------------------------------
$23,776,931 (divided by) 23,776,931 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- ----------------------------------------------------------------------------------------
$63,148,055 (divided by) 63,148,055 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PENNSYLVANIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $12,660,361
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $1,666,725
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee 251,689
- ----------------------------------------------------------------------------------------
Custodian fees 27,705
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 82,035
- ----------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,082
- ----------------------------------------------------------------------------------------
Auditing fees 13,528
- ----------------------------------------------------------------------------------------
Legal fees 7,824
- ----------------------------------------------------------------------------------------
Portfolio accounting fees 103,245
- ----------------------------------------------------------------------------------------
Distribution services fee -- Cash Series Shares 90,728
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 649,440
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Cash Series Shares 56,705
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 127,217
- ----------------------------------------------------------------------------------------
Share registration costs 55,231
- ----------------------------------------------------------------------------------------
Printing and postage 29,498
- ----------------------------------------------------------------------------------------
Insurance premiums 5,299
- ----------------------------------------------------------------------------------------
Miscellaneous 6,147
- ---------------------------------------------------------------------------------------- ------------
Total expenses 3,176,098
- ----------------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------------
Waiver of investment advisory fee ($737,288)
- ------------------------------------------------------------------------
Waiver of distribution services fee -- Cash Series Shares (11,341)
- ------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (129,888)
- ------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Shares (127,217)
- ------------------------------------------------------------------------ ------------
Total waivers (1,005,734)
- ---------------------------------------------------------------------------------------- ------------
Net expenses 2,170,364
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income $10,489,997
- -------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PENNSYLVANIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS --
- ------------------------------------------------------------------------
Net investment income $10,489,997 $9,138,414
- ------------------------------------------------------------------------ -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ------------------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------------------
Institutional Service Shares (8,169,653) (7,961,058)
- ------------------------------------------------------------------------
Cash Series Shares (617,375) (504,436)
- ------------------------------------------------------------------------
Institutional Shares (1,702,969) (672,920)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets resulting from distributions to shareholders (10,489,997) (9,138,414)
- ------------------------------------------------------------------------ -------------- --------------
SHARE TRANSACTIONS --
- ------------------------------------------------------------------------
Proceeds from sale of shares 1,340,687,798 1,005,435,067
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 3,168,018 2,204,567
- ------------------------------------------------------------------------
Cost of shares redeemed (1,271,049,376) (1,036,079,299)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets resulting from share transactions 72,806,440 (28,439,665)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets 72,806,440 (28,439,665)
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period 278,752,100 307,191,765
- ------------------------------------------------------------------------ -------------- --------------
End of period $351,558,540 $278,752,100
- ------------------------------------------------------------------------ -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Pennsylvania Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash Series Shares and
Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of ("Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
- ---------------------------------------------- ----------- ------------
Delaware Valley, PA Regional Finance Authority 8/13/1997 $3,500,000
Pennsylvania Housing Finance Authority 10/16/1997 3,400,000
Pennsylvania Housing Finance Authority 7/21/1997 7,430,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
INSTITUTIONAL SERVICE SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Shares sold 1,052,427,056 859,300,895
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2,495,116 1,683,244
- ------------------------------------------------------------------------
Shares redeemed (1,012,139,333) (915,540,908)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Institutional Service Share transactions 42,782,839 (54,556,769)
- ------------------------------------------------------------------------ -------------- --------------
YEAR ENDED OCTOBER 31,
------------------------------
CASH SERIES SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
Shares sold 71,085,166 54,089,713
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 559,551 485,371
- ------------------------------------------------------------------------
Shares redeemed (67,692,672) (63,005,461)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Cash Series Share transactions 3,952,045 (8,430,377)
- ------------------------------------------------------------------------ -------------- --------------
YEAR ENDED OCTOBER 31,
------------------------------
INSTITUTIONAL SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
Shares sold 217,175,576 92,044,459
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 113,351 35,952
- ------------------------------------------------------------------------
Shares redeemed (191,217,371) (57,532,930)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Institutional Share transactions 26,071,556 34,547,481
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from share transactions 72,806,440 (28,439,665)
- ------------------------------------------------------------------------ -------------- --------------
</TABLE>
At October 31, 1997, capital paid-in aggregated $351,558,540.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Cash
Series Shares. The Plan provides that the Fund may incur distribution expenses
up to 0.40% of the average daily net assets of the Cash Series Shares, annually
to compensate FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $596,236,000 and $628,663,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 86% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 12% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(PENNSYLVANIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio investments, as of October 31, 1997, and the related statement of
operations for the year then ended, and the statement of changes in net assets
and the financial highlights (see pages 2, 12 and 13 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1997, the results of its operations for the
year then ended, and the changes in its net assets and its financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[LOGO OMITTED] Federated Investors
Pennsylvania Municipal Cash Trust
(A Portfolio of Federated
Municipal Trust)
Institutional Service Shares
PROSPECTUS DATED
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an
Open-End Management Investment Company
PENNSYLVANIA
MUNICIPAL CASH TRUST 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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229204
9101005A-SS (12/97)
[RECYCLE LOGO]
RECYCLED PAPER
PENNSYLVANIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Pennsylvania Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Pennsylvania municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Pennsylvania, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and personal income taxes imposed
by the Commonwealth of Pennsylvania consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights -- Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Pennsylvania Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 5
Management of the Fund 5
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Confirmations and Account Statements 8
Accounts with Low Balances 8
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 10
Financial Highlights -- Cash Series Shares 11
Financial Highlights -- Institutional Service Shares 12
Financial Statements 13
Report of Independent Public Accountants 27
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.28%
12b-1 Fee None
Total Other Expenses 0.17%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.45%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.92% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
- -----------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 5
3 Years $13
5 Years $25
10 Years $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1996 1995(A)
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.01
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.01)
- ------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------
TOTAL RETURN(B) 3.38% 3.37% 1.03%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.45% 0.45% 0.45%*
- -------------------------------------------------
Net investment income 3.35% 3.27% 3.81%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.47% 0.47% 0.46%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $63,148 $37,076 $2,529
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Cash Series Shares, and Institutional Service Shares. This prospectus relates
only to Institutional Shares of the Fund, which are designed primarily for
financial institutions acting in a fiduciary or agency capacity as a convenient
means of accumulating an interest in a professionally managed portfolio
investing in short-term Pennsylvania municipal securities. The Fund may not be a
suitable investment for retirement plans or for non- Pennsylvania taxpayers
because it invests in municipal securities of that state. A minimum initial
investment of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Pennsylvania dividend and
interest income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Pennsylvania and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Pennsylvania state
income tax, imposed upon non-corporate taxpayers ("Pennsylvania Municipal
Securities"). Examples of Pennsylvania Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through
a later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and pre-
refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Pennsylvania Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Pennsylvania Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Pennsylvania
Municipal Securities is subject to the federal alternative minimum tax.
PENNSYLVANIA MUNICIPAL SECURITIES
Pennsylvania Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Pennsylvania Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Pennsylvania Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Pennsylvania Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Pennsylvania Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Pennsylvania
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Pennsylvania Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Pennsylvania Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Pennsylvania Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to the risk considerations the Fund's
concentration in Pennsylvania Municipal Securities may entail a greater level of
risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings. The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval.
The following limitation may be changed without shareholder approval. The Fund
will not invest more than 10% of the value of its net assets in illiquid
securities including repurchase agreements providing for settlement in more than
seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for
Institutional Shares of the Fund. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a
subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
-------- ------------------------------
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania
Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Pennsylvania Municipal Cash Trust -- Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266- 8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Keystone Health Plan West, Pittsburgh, Pennsylvania,
owned 30.20% of the voting securities of the Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Donnelly & Meck, counsel to the Trust, Fund shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Fund would be subject to such taxes if owned directly by residents of
those jurisdictions.
Because interest received by the Fund may not be exempt from all state and local
income taxes, shareholders may be required to pay state and local taxes on
dividends received from the Fund. Shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
PENNSYLVANIA TAXES
Under existing Pennsylvania laws, distributions made by the Fund derived from
interest on obligations free from state taxation in Pennsylvania are not subject
to Pennsylvania personal income taxes. Distributions made by the Fund will be
subject to Pennsylvania personal income taxes to the extent that they are
derived from gain realized by the Fund from the sale or exchange of otherwise
tax-exempt obligations.
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Institutional Service Shares
and Cash Series Shares. Institutional Service Shares are sold at net asset value
primarily to financial institutions acting in a fiduciary or agency capacity and
are subject to a minimum initial investment of $25,000 over a 90-day period.
Cash Series Shares are sold at net asset value primarily to retail customers of
financial institutions and are subject to a minimum initial investment of
$10,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan but are subject
to shareholder services fees.
Cash Series Shares are distributed under a 12b-1 Plan adopted by the Fund and
also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield, tax-
equivalent yield, and total return. The performance figures will be calculated
separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.03
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 2.77% 2.75% 3.02% 1.84% 1.83% 2.67% 3.55%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 1.05% 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%*
- -------------------------------------------------
Net investment income 2.72% 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.27% 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $23,777 $19,825 $28,255 $18,352 $18,561 $24,694 $19,846
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 25, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 27.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990(A)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.05 0.05
- -------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05)
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 3.18% 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.65% 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%*
- -------------------------------------------------
Net investment income 3.14% 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%*
- -------------------------------------------------
Expense waiver/reimbursement(c) 0.27% 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%*
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $264,634 $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from Novemebr 21, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 101.1%
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 101.1%
- -------------------------------------------------------------------------------------------------------------
$1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/
(Sanwa Bank Ltd., Osaka LOC) $1,000,000
----------------------------------------------------------------------------------------------
6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/(Barclays Bank PLC,
London LOC), Mandatory Tender 2/5/1998 6,500,000
----------------------------------------------------------------------------------------------
4,710,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly
VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,710,000
----------------------------------------------------------------------------------------------
5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.85% TOBs (Duquesne Light Power Co.)/
(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 10/21/1998 5,000,000
----------------------------------------------------------------------------------------------
3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.70% CP (Toledo Edison Co.)/
(Toronto-Dominion Bank LOC), Mandatory Tender 12/4/1997 3,000,000
----------------------------------------------------------------------------------------------
5,800,000 Beaver County, PA IDA, PCRB's (Series 1990C), 3.75% CP (Duquesne Light Power Co.)/
(Barclays Bank PLC, London LOC), Mandatory Tender 12/1/1997 5,800,000
----------------------------------------------------------------------------------------------
4,000,000 Bedford County, PA IDA, (Series 1985) Weekly VRDNs (Sepa, Inc. Facility)/(First Union
National Bank, Charlotte, NC LOC) 4,000,000
----------------------------------------------------------------------------------------------
5,000,000 Bensalem Township School District, PA, 4.00% TRANs, 6/30/1998 5,000,927
----------------------------------------------------------------------------------------------
1,115,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid
Meats)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 1,115,000
----------------------------------------------------------------------------------------------
910,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/(Corestates
Bank N.A.,
Philadelphia, PA LOC) 910,000
----------------------------------------------------------------------------------------------
1,700,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,700,000
----------------------------------------------------------------------------------------------
3,550,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1996) Weekly VRDNs
(Ram Industries, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 3,550,000
----------------------------------------------------------------------------------------------
1,725,000 Berks County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,725,000
----------------------------------------------------------------------------------------------
345,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 345,000
----------------------------------------------------------------------------------------------
1,040,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LOC) 1,040,000
----------------------------------------------------------------------------------------------
1,015,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs
(Lebanon Valley Mall Co.)/(Meridian Bank, Reading, PA LOC) 1,015,000
----------------------------------------------------------------------------------------------
2,135,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics,
Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,135,000
----------------------------------------------------------------------------------------------
2,700,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania
Associates)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,700,000
----------------------------------------------------------------------------------------------
3,235,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/
(Corestates Bank N.A., Philadelphia, PA LOC) 3,235,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$3,585,000 Bucks County, PA IDA, Variable Rate Demand/Fixed Rate Revenue Bonds (Series 1997)
Weekly VRDNs (Boekel Industries, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $3,585,000
----------------------------------------------------------------------------------------------
3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd,
Osaka LOC) 3,000,000
----------------------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd,
Osaka LOC) 1,000,000
----------------------------------------------------------------------------------------------
1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/
(Sanwa Bank Ltd, Osaka LOC) 1,000,000
----------------------------------------------------------------------------------------------
1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/
(Chase Manhattan Bank N.A., New York LOC) 1,400,000
----------------------------------------------------------------------------------------------
2,330,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc.
Project)/(ABN AMRO Bank N.V., Amsterdam LOC) 2,330,000
----------------------------------------------------------------------------------------------
2,250,000 Butler County, PA IDA, IDRB's (Series 1997) Weekly VRDNs (Wise Business Forms, Inc.)/
(SouthTrust Bank of Alabama, Birmingham LOC) 2,250,000
----------------------------------------------------------------------------------------------
11,400,000 Butler County, PA IDA, Variable Rate Demand Revenue Bonds (Series 1996A), 3.80%-4.25%
TOBs (Lutheran Welfare)/(PNC Bank, N.A. LOC), Mandatory Tender 11/3/1997-11/1/1998 11,400,172
----------------------------------------------------------------------------------------------
2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 2,400,000
----------------------------------------------------------------------------------------------
1,500,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 1,500,000
----------------------------------------------------------------------------------------------
2,500,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 2,500,000
----------------------------------------------------------------------------------------------
1,500,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/
(PNC Bank, N.A. LOC) 1,500,000
----------------------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, 3.75% CP (Panther Creek)/(National Westminster Bank, PLC, London
LOC), Mandatory Tender 12/17/1997 5,000,000
----------------------------------------------------------------------------------------------
1,290,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B), 3.80% CP (Panther Creek)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1998 1,290,000
----------------------------------------------------------------------------------------------
1,060,000 Carbon County, PA IDA, Resource Recovery Bonds (Series B), 3.85% CP (Panther Creek)/
(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/16/1997 1,060,000
----------------------------------------------------------------------------------------------
6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.75% CP (Panther Creek)/(National
Westminster Bank, PLC, London LOC), Mandatory Tender 12/12/1997 6,825,000
----------------------------------------------------------------------------------------------
5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1996), 3.90% RANs
(Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York LOC),
12/3/97 5,000,000
----------------------------------------------------------------------------------------------
3,174,280 Chartiers Valley Industrial & Commercial Development Authority, Nursing Home Revenue
Refunding Bonds (Series 1997A) Weekly VRDNs (Woodhaven Convalescent Center)/
(Bank One, Ohio, N.A. LOC) 3,174,280
----------------------------------------------------------------------------------------------
7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 7,300,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA,
Pittsburgh LOC) $3,000,000
----------------------------------------------------------------------------------------------
1,300,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs
(Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000
----------------------------------------------------------------------------------------------
10,000,000 Cumberland County, PA Municipal Authority, Variable Rate Revenue Bonds (Series 1996 B),
3.75% TOBs (Dickinson College)/(Mellon Bank N.A., Pittsburgh LOC), Optional Tender 11/2/1998 10,000,000
----------------------------------------------------------------------------------------------
3,500,000 (b)Delaware Valley, PA Regional Finance Authority, PA-162 Weekly
VRDNs (AMBAC INS)/
(Merrill Lynch Capital Services, Inc. LIQ) 3,500,000
----------------------------------------------------------------------------------------------
4,400,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/
(Wachovia Bank of Georgia N.A., Atlanta LOC) 4,400,000
----------------------------------------------------------------------------------------------
6,250,000 East Hempfield Township, PA IDA, (Series of 1997) Weekly VRDNs (Mennonite Home)/
(Dauphin Deposit Bank and Trust LOC) 6,250,000
----------------------------------------------------------------------------------------------
3,500,000 Easton Area School District, PA, (Series 1997) Weekly VRDNs (FGIC INS)/(FGIC Securities
Purchase, Inc. LIQ) 3,500,000
----------------------------------------------------------------------------------------------
2,900,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Mary's Hospital Erie, PA)/
(PNC Bank, N.A. LOC) 2,900,000
----------------------------------------------------------------------------------------------
1,000,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/
(Mellon Bank N.A., Pittsburgh LOC) 1,000,000
----------------------------------------------------------------------------------------------
200,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 200,000
----------------------------------------------------------------------------------------------
225,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) 225,000
----------------------------------------------------------------------------------------------
400,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000
----------------------------------------------------------------------------------------------
200,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank,
Cleveland, OH LOC) 200,000
----------------------------------------------------------------------------------------------
1,030,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) 1,030,000
----------------------------------------------------------------------------------------------
2,900,000 Franconia Township, PA IDA, IDRB's (Series 1997A) Weekly VRDNs
(Asher's Chocolates)/
(Mellon Bank N.A., Pittsburgh LOC) 2,900,000
----------------------------------------------------------------------------------------------
1,635,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/
(PNC Bank, N.A. LOC) 1,635,000
----------------------------------------------------------------------------------------------
5,000,000 Indiana County, PA IDA, Pollution Control Revenue Bonds (Series 1997A) Weekly VRDNs
(Peco Energy Co.)/(Union Bank of Switzerland, Zurich LOC) 5,000,000
----------------------------------------------------------------------------------------------
8,205,000 Lancaster, PA Higher Education Authority, (Series 1997) Weekly VRDNs (Franklin and
Marshall College Project)/(Chase Manhattan Bank N.A., New York LIQ) 8,205,000
----------------------------------------------------------------------------------------------
356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/
(KeyBank, N.A. LOC) 356,092
----------------------------------------------------------------------------------------------
4,640,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly VRDNs
(Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,640,000
----------------------------------------------------------------------------------------------
2,600,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/
(PNC Bank, N.A. LOC) 2,600,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$1,000,000 Lehigh County, PA IDA, Variable Rate Demand Revenue Bonds (Series 1997) Weekly VRDNs
(American Manufacturing Co., Inc.)/(Mellon Bank N.A., Pittsburgh LOC) $1,000,000
----------------------------------------------------------------------------------------------
6,840,000 McKean County, PA IDA, Economic Development Revenue Bonds (Series 1997)
Weekly VRDNs (Keystone Powdered Metal Co.)/(Mellon Bank N.A., Pittsburgh LOC) 6,840,000
----------------------------------------------------------------------------------------------
550,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford
Manor, Inc.)/(PNC Bank, N.A. LOC) 550,000
----------------------------------------------------------------------------------------------
3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd.,
Osaka LOC) 3,300,000
----------------------------------------------------------------------------------------------
2,270,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly VRDNs
(Pottstown Healthcare Corporation Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,270,000
----------------------------------------------------------------------------------------------
3,500,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (Seton Co.)/
(First Union National Bank, Charlotte, NC LOC) 3,500,000
----------------------------------------------------------------------------------------------
1,200,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/
(Corestates Bank N.A., Philadelphia, PA LOC) 1,200,000
----------------------------------------------------------------------------------------------
4,250,000 Montgomery County, PA IDA, (Series C) Weekly VRDNs (Vari Corp.)/(Dauphin Deposit Bank
and Trust LOC) 4,250,000
----------------------------------------------------------------------------------------------
6,675,000 Montgomery County, PA IDA, Commercial Development Revenue Bonds (Series 1992)
Weekly VRDNs (Hickory Pointe Project)/(First Union National Bank, Charlotte, N.C. LOC) 6,675,000
----------------------------------------------------------------------------------------------
2,140,000 Montgomery County, PA IDA, EDRB's (Series 1997) Weekly VRDNs (Palmer International, Inc.)/
(Mellon Bank N.A., Pittsburgh LOC) 2,140,000
----------------------------------------------------------------------------------------------
1,000,000 Montgomery County, PA IDA, Tax-Exempt Variable Rate Demand/Fixed Rate Revenue Bonds
(Series A of 1997) Weekly VRDNs (Vari Corp.)/(Dauphin Deposit Bank and Trust LOC) 1,000,000
----------------------------------------------------------------------------------------------
4,875,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/(ABN
AMRO Bank N.V.,
Amsterdam LOC) 4,875,000
----------------------------------------------------------------------------------------------
1,110,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond
(Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 1,110,000
----------------------------------------------------------------------------------------------
361,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial
Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 361,000
----------------------------------------------------------------------------------------------
9,000,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 11/19/1997 9,000,000
----------------------------------------------------------------------------------------------
3,850,000 Northampton County, PA IDA, 3.85% CP (Citizens Utilities Co.), Mandatory Tender 2/13/1998 3,850,000
----------------------------------------------------------------------------------------------
2,542,000 Northampton County, PA IDA, Variable Rate Revenue Bonds (Series 1997) Weekly VRDNs
(Ultra-Poly Corp.)/(PNC Bank, N.A. LOC) 2,542,000
----------------------------------------------------------------------------------------------
1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs
(Furman Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000
----------------------------------------------------------------------------------------------
1,725,000 Pennsylvania EDFA Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) 1,725,000
----------------------------------------------------------------------------------------------
2,700,000 Pennsylvania EDFA Weekly VRDNs (Industrial Scientific
Corp.)/(Mellon Bank N.A.,
Pittsburgh LOC) 2,700,000
----------------------------------------------------------------------------------------------
600,000 Pennsylvania EDFA Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) 600,000
----------------------------------------------------------------------------------------------
525,000 Pennsylvania EDFA Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) 525,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------- ----------------------------------------------------------------------------------------------
$575,000 Pennsylvania EDFA, (Series B) Weekly VRDNs (Payne Printing Co.)/(PNC Bank, N.A. LOC) $575,000
----------------------------------------------------------------------------------------------
2,890,000 Pennsylvania EDFA, Economic Development Revenue Bonds (Series 1996C) Weekly VRDNs
(Napco, Inc. Project)/(Mellon Bank N.A., Pittsburgh LOC) 2,890,000
----------------------------------------------------------------------------------------------
850,000 Pennsylvania EDFA, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/
(PNC Bank, N.A. LOC) 850,000
----------------------------------------------------------------------------------------------
275,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/
(PNC Bank, N.A. LOC) 275,000
----------------------------------------------------------------------------------------------
375,000 Pennsylvania EDFA, Revenue Bonds Weekly VRDNs (RAM Forest Products)/
(PNC Bank, N.A. LOC) 375,000
----------------------------------------------------------------------------------------------
7,430,000 (b)Pennsylvania Housing Finance Authority, Merlots (Series K) Weekly VRDNs
(Corestates Bank N.A., Philadelphia, PA LIQ) 7,430,000
----------------------------------------------------------------------------------------------
3,400,000 (b)Pennsylvania Housing Finance Authority, PT-119B(Series 1997-56B) Weekly VRDNs
(Credit Suisse First Boston, Inc. LIQ) 3,400,000
----------------------------------------------------------------------------------------------
940,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development
Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 940,000
----------------------------------------------------------------------------------------------
7,000,000 Pennsylvania State Higher Education Assistance Agency, Student Loan Adjustable Rate
Revenue Bonds (Series 1997A) Weekly VRDNs (Student Loan Marketing Association LOC) 7,000,000
----------------------------------------------------------------------------------------------
2,700,000 Philadelphia, PA IDA, Refunding Revenue Bonds (Series 1991) Weekly VRDNs
(Tom James Co.)/(SunTrust Bank, Nashville LOC) 2,700,000
----------------------------------------------------------------------------------------------
7,500,000 Philadelphia, PA School District, (Series 1997-1998), 4.50% TRANs (Commerzbank AG,
Frankfurt LOC), 6/30/1998 7,523,801
----------------------------------------------------------------------------------------------
3,250,000 Philadelphia, PA Water & Wastewater System, (CDC Series 1997Q)
Weekly VRDNs
(MBIA Insurance Corporation INS)/(CDC Municipal Products, Inc. LIQ) 3,250,000
----------------------------------------------------------------------------------------------
3,000,000 Philadelphia, PA, (Series A), 4.50% TRANs, 6/30/1998 3,009,521
----------------------------------------------------------------------------------------------
15,000,000 Philadelphia, PA, GO (Series 1990), 3.75% CP (Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
11/20/97 15,000,000
----------------------------------------------------------------------------------------------
5,000,000 Philadelphia, PA, Trust Receipts (Series 1997 FR/RI-11) Weekly VRDNs
(Bank of New York Co., Inc. LIQ) 5,000,000
----------------------------------------------------------------------------------------------
4,625,000 Red Lion, PA Area School District, (Series 1997/98), 4.11% TRANs, 6/30/1998 4,629,103
----------------------------------------------------------------------------------------------
1,900,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995)
Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000
----------------------------------------------------------------------------------------------
2,000,000 Schuylkill County, PA IDA, Variable Rate Demand/Fixed Rate Manufacturing Facilities
Revenue Bonds (Series of 1996) Weekly VRDNs (Craftex Mills, Inc.)/(Corestates Bank N.A.,
Philadelphia, PA LOC) 2,000,000
----------------------------------------------------------------------------------------------
2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.80% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/21/1998 2,100,000
----------------------------------------------------------------------------------------------
4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.85% CP (Scrubgrass Power
Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 12/16/1997 4,000,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ---------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
$2,700,000 Washington County, PA Authority, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment
Lease Program)/(Sanwa Bank Ltd, Osaka LOC) $2,700,000
----------------------------------------------------------------------------------------------
10,700,000 Washington County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1995)
Weekly VRDNs (American Iron Oxide Co. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 10,700,000
----------------------------------------------------------------------------------------------
1,050,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA,
Pittsburgh LOC) 1,050,000
----------------------------------------------------------------------------------------------
2,000,000 West Allegheny, PA School District, 4.11% TRANs, 6/30/1998 2,001,391
----------------------------------------------------------------------------------------------
935,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995)
Weekly VRDNs (Lebanon Valley Brethern Home Project (PA))/(Corestates Bank N.A.,
Philadelphia, PA LOC) 935,000
----------------------------------------------------------------------------------------------
9,600,000 Westmoreland County, PA IDA, Guaranteed Variable Rate Revenue Bonds (Series of 1993)
Weekly VRDNs (USA Waste Services, Inc.)/(Fleet Bank. N.A. LOC) 9,600,000
----------------------------------------------------------------------------------------------
4,455,000 Westmoreland County, PA IDA, Revenue Bonds (Series 1997) Weekly VRDNs (Rhodin
Enterprises Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,455,000
----------------------------------------------------------------------------------------------
2,500,000 York County, PA IDA, Limited Obligation Revenue Bonds (Series 1997) Weekly VRDNs
(Metal Exchange Corp.)/(Comerica Bank, Detroit, MI LOC) 2,500,000
----------------------------------------------------------------------------------------------
2,750,000 York County, PA IDA, Variable Rate Demand Ltd Obligation Revenue Bonds (Series 1996)
Weekly VRDNs (Metal Exchange Corp.)/(Comerica Bank, Detroit, MI LOC) 2,750,000
----------------------------------------------------------------------------------------------
1,170,000 Yough School District, PA, Ltd Obligation Revenue Bonds, (Refunding Series 1997A), 4.35%
Bonds (Asset Guaranty INS), 4/1/1998 1,170,000
---------------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) 355,548,287
---------------------------------------------------------------------------------------------- ------------
</TABLE>
At October 31, 1997, 47.7% of the total investments at market value were subject
to alternative minimum tax.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
---------- ------------
98.59% 1.41%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $14,330,000 which represents 4.1% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($351,558,540) at October 31, 1997.
PENNSYLVANIA MUNICIPAL CASH TRUST
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation CGIC -- Capital Guaranty
Insurance Corporation CP -- Commercial Paper EDFA -- Economic Development
Financing Authority EDRB -- Economic Development Revenue Bonds FGIC -- Financial
Guaranty Insurance Company GO -- General Obligation IDA -- Industrial
Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured
LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond
Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited
Company RANs -- Revenue Anticipation Notes TOBs -- Tender Option Bonds TRANs --
Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $355,548,287
- ----------------------------------------------------------------------------------------
Cash 535,080
- ----------------------------------------------------------------------------------------
Income receivable 2,015,248
- ----------------------------------------------------------------------------------------
Receivable for shares sold 234,079
- ---------------------------------------------------------------------------------------- ------------
Total assets 358,332,694
- ----------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------
Payable for investments purchased $6,001,267
- ------------------------------------------------------------------------
Payable for shares redeemed 457
- ------------------------------------------------------------------------
Income distribution payable 663,292
- ------------------------------------------------------------------------
Accrued expenses 109,138
- ------------------------------------------------------------------------ ------------
Total liabilities 6,774,154
- ---------------------------------------------------------------------------------------- ------------
NET ASSETS for 351,558,540 shares outstanding $351,558,540
- ---------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ----------------------------------------------------------------------------------------
$264,633,554 (divided by) 264,633,554 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
CASH SERIES SHARES:
- ----------------------------------------------------------------------------------------
$23,776,931 (divided by) 23,776,931 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- ----------------------------------------------------------------------------------------
$63,148,055 (divided by) 63,148,055 shares outstanding $1.00
- ---------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PENNSYLVANIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------------
Interest $12,660,361
- --------------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $1,666,725
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee 251,689
- ----------------------------------------------------------------------------------------
Custodian fees 27,705
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 82,035
- ----------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,082
- ----------------------------------------------------------------------------------------
Auditing fees 13,528
- ----------------------------------------------------------------------------------------
Legal fees 7,824
- ----------------------------------------------------------------------------------------
Portfolio accounting fees 103,245
- ----------------------------------------------------------------------------------------
Distribution services fee -- Cash Series Shares 90,728
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 649,440
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Cash Series Shares 56,705
- ----------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 127,217
- ----------------------------------------------------------------------------------------
Share registration costs 55,231
- ----------------------------------------------------------------------------------------
Printing and postage 29,498
- ----------------------------------------------------------------------------------------
Insurance premiums 5,299
- ----------------------------------------------------------------------------------------
Miscellaneous 6,147
- ---------------------------------------------------------------------------------------- ------------
Total expenses 3,176,098
- ----------------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------------
Waiver of investment advisory fee ($737,288)
- ------------------------------------------------------------------------
Waiver of distribution services fee -- Cash Series Shares (11,341)
- ------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (129,888)
- ------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Shares (127,217)
- ------------------------------------------------------------------------ ------------
Total waivers (1,005,734)
- ---------------------------------------------------------------------------------------- ------------
Net expenses 2,170,364
- -------------------------------------------------------------------------------------------------------- ------------
Net investment income $10,489,997
- -------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PENNSYLVANIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS --
- ------------------------------------------------------------------------
Net investment income $10,489,997 $9,138,414
- ------------------------------------------------------------------------ -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ------------------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------------------
Institutional Service Shares (8,169,653) (7,961,058)
- ------------------------------------------------------------------------
Cash Series Shares (617,375) (504,436)
- ------------------------------------------------------------------------
Institutional Shares (1,702,969) (672,920)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets resulting from distributions to shareholders (10,489,997) (9,138,414)
- ------------------------------------------------------------------------ -------------- --------------
SHARE TRANSACTIONS --
- ------------------------------------------------------------------------
Proceeds from sale of shares 1,340,687,798 1,005,435,067
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 3,168,018 2,204,567
- ------------------------------------------------------------------------
Cost of shares redeemed (1,271,049,376) (1,036,079,299)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets resulting from share transactions 72,806,440 (28,439,665)
- ------------------------------------------------------------------------ -------------- --------------
Change in net assets 72,806,440 (28,439,665)
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period 278,752,100 307,191,765
- ------------------------------------------------------------------------ -------------- --------------
End of period $351,558,540 $278,752,100
- ------------------------------------------------------------------------ -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PENNSYLVANIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Pennsylvania Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash Series Shares and
Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the Commonwealth of
Pennsylvania consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of ("Trustees"). The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
- ---------------------------------------------- ----------- ------------
Delaware Valley, PA Regional Finance Authority 8/13/1997 $3,500,000
Pennsylvania Housing Finance Authority 10/16/1997 3,400,000
Pennsylvania Housing Finance Authority 7/21/1997 7,430,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
INSTITUTIONAL SERVICE SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Shares sold 1,052,427,056 859,300,895
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2,495,116 1,683,244
- ------------------------------------------------------------------------
Shares redeemed (1,012,139,333) (915,540,908)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Institutional Service Share transactions 42,782,839 (54,556,769)
- ------------------------------------------------------------------------ -------------- --------------
YEAR ENDED OCTOBER 31,
------------------------------
CASH SERIES SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
Shares sold 71,085,166 54,089,713
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 559,551 485,371
- ------------------------------------------------------------------------
Shares redeemed (67,692,672) (63,005,461)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Cash Series Share transactions 3,952,045 (8,430,377)
- ------------------------------------------------------------------------ -------------- --------------
YEAR ENDED OCTOBER 31,
------------------------------
INSTITUTIONAL SHARES 1997 1996
- ------------------------------------------------------------------------ -------------- --------------
Shares sold 217,175,576 92,044,459
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 113,351 35,952
- ------------------------------------------------------------------------
Shares redeemed (191,217,371) (57,532,930)
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from Institutional Share transactions 26,071,556 34,547,481
- ------------------------------------------------------------------------ -------------- --------------
Net change resulting from share transactions 72,806,440 (28,439,665)
- ------------------------------------------------------------------------ -------------- --------------
</TABLE>
At October 31, 1997, capital paid-in aggregated $351,558,540.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Cash
Series Shares. The Plan provides that the Fund may incur distribution expenses
up to 0.40% of the average daily net assets of the Cash Series Shares, annually
to compensate FSC. The distributor may voluntarily choose to waive any portion
of its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $596,236,000 and $628,663,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 86% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 12% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(PENNSYLVANIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1997, the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights (see pages 2, 11 and 12 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pennsylvania Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust) as of October 31, 1997, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[LOGO OMITTED] FEDERATED INVESTORS
Pennsylvania
Municipal Cash Trust
(A Portfolio of Federated
Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
PENNSYLVANIA
MUNICIPAL CASH TRUST
INSTITUTIONAL 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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229717
G00214-01-IS (12/97)
[RECYCLE LOGO]
RECYCLED PAPER
PENNSYLVANIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH SERIES SHARES
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus(es)
of Pennsylvania Municipal Cash Trust (the "Fund"), a portfolio of Federated
Municipal Trust (the "Trust") dated December 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.
PENNSYLVANIA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic] Federated Investors
Federated Securities Corp., Distributor
Cusip 314229881
Cusip 314229717
Cusip 314229204
9101005B (12/97)
TABLE OF CONTENTS
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
PENNSYLVANIA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 10
Distribution Plan and Shareholder Services 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 13
Total Return 13
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non- appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub- categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. The Fund or its custodian will take possession
of the securities subject to repurchase agreements, and these securities will be
marked to market daily. In the event that a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit- enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
PENNSYLVANIA INVESTMENT RISKS
The Fund invests in obligations of Pennsylvania (the "Commonwealth") issuers
which result in the Fund's performance being subject to risks associated with
the overall conditions present within the Commonwealth. The following
information is a brief summary of the prevailing economic conditions and general
summary of the Commonwealth's financial condition. This information is based on
official statements relating to securities and from other sources believed to be
reliable but should not be considered as a complete description of all relevant
information.
Pennsylvania's economy has been performing below the national average and is
expected to continue this pattern over the next several years. While job growth
has improved since the early 1990's, it still continues to lag well behind the
national growth levels. Manufacturing is still an important industry in the
Commonwealth but has been exceeded by employment in both services and trade.
Growth in personal income has also lagged the national growth rate but
Pennsylvania per capita income does exceed the national average and ranks 19th
among the states. Despite the economic challenges, the Commonwealth's financial
position has remained stable due to improved spending controls and strong fiscal
management. In addition, Pennsylvania continues to maintain a moderate debt
level.
The overall credit quality of the Commonwealth is demonstrated by its debt
ratings. Pennsylvania was recently upgraded to a Aa3 rating by Moody's Investors
Service, Inc. Standard & Poors Ratings Group rates the Commonwealth AA-.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund whose assets
are diversified across numerous states and municipal issuers. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth, its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for the clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the value of
total assets at the time of the pledge.
DIVERSIFICATION OF INVESTMENTS
At the close of each quarter of each fiscal year, no more than 25% of the Fund's
total assets will be invested in the securities of a single issuer, but, with
regard to at least 50% of the Fund's total assets, no more than 5% of the Fund's
total assets are to be invested in securities of a single issuer.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, will be
considered a separate issuer if its assets and revenues are separate from those
of the government body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental issuer are considered to be issued solely by that issuer. If in
the case of an industrial development bond or government- issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire publicly or
non publicly issued Pennsylvania municipal securities or temporary investments
or enter into repurchase agreements, in accordance with its investment
objective, policies and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
PORTFOLIO TRADING
In order to pass through to investors the tax-free income from the Fund for
purposes of the Pennsylvania Personal Income Tax, the Fund will invest in
securities for income earnings rather than trading for profit. The Fund will not
vary its investments, except to: (i) eliminate unsafe investments and
investments not consistent with the preservation of the capital or the tax
status of the investments of the Fund; (ii) honor redemption orders, meet
anticipated redemption requirements, and negate gains from discount purchases;
(iii) maintain a constant net asset value per unit pursuant to, and in
compliance with, an order or rule of the United States Securities and Exchange
Commission; (iv) reinvest the earnings from securities in like securities; or
(v) defray normal administrative expenses (the "Pennsylvania Investment
Restrictions").
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, (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 the 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 Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive
Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; Partner or Trustee in
private real estate ventures in Southwest Florida; formerly, President,
Naples Property Management, Inc. and Northgate Village Development
Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza -- 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center -- Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of
the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.; President,
Passport Research, Ltd.; Trustee, Federated Shareholder Services
Company, and Federated Shareholder Services; Director, Federated
Services Company; President or Executive Vice President of the Funds;
Director or Trustee of some of the Funds. Mr. Donahue is the son of John
F. Donahue, Chairman and Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Cash Series Shares of Pennsylvania Municipal Cash Trust: BHC
Securities, Inc., Philadelphia, Pennsylvania, owned approximately 4,619,450
shares (19.43%); Raymond J. Webber, Wexford, Pennsylvania, owned approximately
2,475,959 shares (10.42%); Lehigh, Allentown, Pennsylvania, owned approximately
1,423,952 shares (5.99%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of Pennsylvania Municipal Cash Trust:
Keystone Health Plan West , Pittsburgh, Pennsylvania, owned approximately
20,000,000 shares (30.20%); Holiday Company, Holidaysburgh, Pennsylvania, owned
approximately 7,021,356 shares (10.60%); JASCO & Company, Indiana, Pennsylvania,
owned approximately 5,668,238 shares (8.56%); Thomas Heasley & Company,
Greensburg, Pennsylvania, owned approximately 4,896,997 shares (7.40%); Dickey &
Company, Somerset, Pennsylvania, owned approximately 3,542,958 (5.35%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of Pennsylvania Municipal Cash
Trust: First Union National Bank, Charlotte, North Carolina, owned approximately
42,757,868 shares (16.33%); Mellon Bank Capital Markets, Pittsburgh,
Pennsylvania, owned approximately 35,590,839 shares (13.59%); Dauphin Deposit
Bank & Trust, Harrisburg, Pennsylvania, owned approximately 24,245,007 shares
(9.26%); Keystone Financial, Inc., Altoona, Pennsylvania, owned approximately
15,366,345 shares (5.87%); Corestates Bank NA, Philadelphia, Pennsylvania, owned
approximately 14,338,953 shares (5.48%); Saxon & Company Philadelphia,
Pennsylvania, owned approximately 14,287,233 shares (5.46%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $-0- $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $-0- $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund ,or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $1,666,725, $1,470,813, and
$1,445,400, respectively, of which $737,288, $647,993, and $222,841,
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $251,689, $222,042,
and $218,834, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Plan, the Trustees expect that the Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, payments in the amount of $90,728
were made pursuant to the Plan for Cash Series Shares, $79,387 of which was paid
to financial institutions. In addition, for the fiscal year ended October 31,
1997, Cash Series Shares, Institutional Shares, and Institutional Service Shares
earned shareholder service fees in the amounts of $56,705, $127,217, and
$649,440, respectively, of which $56,705, $0, and $519,552, respectively, were
paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To he
extent that financial institutions and broker/dealers charge fees in connection
with services provided in conjunction with an investment in shares of the Fund,
the performance will be reduced for those shareholders paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yields for Cash Series
Shares, Institutional Shares, and Institutional Service Shares
were 2.78%, 3.38%, and 3.18%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yields for Cash
Series Shares, Institutional Shares, and Institutional Service Shares, were
2.82%, 3.44%, and 3.23%, respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 42.40% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt.
For the seven-day period October 31, 1997, the tax-equivalent yields for Cash
Series Shares, Institutional Shares, and Institutional Service Shares, were
4.83%, 5.87%, and 5.52%, respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
Cash Series Shares average annual total returns for the one-year and five-year
periods ended October 31, 1997, and for the period from January 25, 1991, (date
of initial public investment) through October 31, 1997, were 2.77%, 2.44%, and
2.69%, respectively.
Institutional Shares average annual total returns for the one-year period ended
October 31, 1997, and for the period from August 23, 1995, (date of initial
public investment) through October 31, 1997, were 3.38% and 3.41%, respectively.
Institutional Service Shares average annual total returns for the one-year and
five-year periods ended October 31, 1997, and for the period from November 21,
1989, (date of initial public investment) through October 31, 1997, were 3.18%,
2.85%, and 3.46%, respectively.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making -- structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime and 21 municipal with
assets approximating $28.0 billion, $12.8 billion and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATING GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus sign (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA-- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2 -- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
MINNESOTA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Cash Series Shares
PROSPECTUS
The Cash Series Shares of Minnesota Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a portfolio of Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
Fund invests primarily in short-term Minnesota municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Minnesota, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and regular personal income taxes imposed by the State of
Minnesota consistent with stability of principal. THE SHARES OFFERED BY THIS
PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS
IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated
December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Cash Series Shares 2 General
Information 3 Investment Information 3 Investment Policies 3 Minnesota
Municipal Securities 5 Investment Risks 5 Investment Limitations 6 Fund
Information 6 Management of the Fund 6 Distribution of Cash Series Shares 6
Administration of the Fund 7 Net Asset Value 7 How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 8 Purchasing Shares by Wire 8
Purchasing Shares by Check 8 Special Purchase Features 8 How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8 Redeeming Shares by
Telephone 8 Redeeming Shares by Mail 9 Special Redemption Features 9 Account
and Share Information 9 Dividends 9 Capital Gains 9 Confirmations and Account
Statements 10 Accounts with Low Balances 10 Voting Rights 10 Tax Information 10
Federal Income Tax 10 State and Local Taxes 10 Other Classes of Shares 11
Performance Information 11 Financial Highlights--Institutional Shares 12
Financial Statements 13 Report of Independent Public Accountants 26
SUMMARY OF FUND EXPENSES
CASH SERIES SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.14%
12b-1 Fee (after waiver)(2) 0.25%
Total Other Expenses 0.41%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 0.80%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate this voluntary waiver at any
time at its sole discretion. The maximum 12b-1 fee is 0.50%.
(3) The total operating expenses would have been 1.31% absent the voluntary
waivers of portions of the management fee and the 12b-1 fee.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITY DEALERS, INC.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Cash Series Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
EXAMPLE
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 8
3 Years $26
5 Years $44
10 Years $99
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
income
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.97% 2.97% 3.41% 2.17% 2.02% 2.78% 3.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.70% 0.71% 0.71% 0.71% 0.64%*
Net investment income 2.92% 2.93% 3.37% 2.15% 2.01% 2.75% 4.11%*
Expense waiver/reimbursement(c) 0.51% 0.51% 0.62% 0.61% 0.44% 0.44% 0.59%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $221,227$235,614 $131,471 $94,335 $67,521$75,044 $69,747
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 7, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Cash Series Shares and
Institutional Shares. This prospectus relates only to Cash Series Shares of the
Fund, which are designed primarily for retail customers of financial
institutions as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Minnesota municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Minnesota taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
The investment objective of the Fund is current income exempt from federal
regular income tax and the regular personal income taxes imposed by the State of
Minnesota consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, the Fund invests its assets so that (1) at least
80% of the Fund's annual interest income will be exempt from federal regular
income tax and Minnesota regular personal income tax ("exempt interest
dividends"); and (2) at least 95% of the exempt interest dividends that the Fund
pays to its shareholders will derive from interest income from Minnesota
municipal obligations. The remaining 5% of such exempt interest dividends paid
to shareholders will derive either from interest income on Minnesota municipal
securities or interest income which is exempt from both federal regular and
Minnesota regular personal income taxes. (Federal regular income tax does not
include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective. ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Minnesota and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Minnesota state income
tax imposed upon non-corporate taxpayers ("Minnesota Municipal Securities").
Examples of Minnesota Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Minnesota Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Minnesota Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. As a matter of fundamental investment policy, which cannot be
changed without shareholder approval, the Fund will not invest more than 10% of
its net assets in restricted securities except for certain restricted securities
that meet the criteria for liquidity established by the Trustees. As a matter of
non-fundamental investment policy, the Fund will limit investments in illiquid
securities, including illiquid restricted securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Minnesota
Municipal Securities is subject to the federal alternative minimum tax.
MINNESOTA MUNICIPAL SECURITIES
Minnesota Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Minnesota Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Minnesota Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Minnesota Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Minnesota Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Minnesota
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Minnesota Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Minnesota Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Minnesota Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Minnesota Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. These investment limitations cannot be
changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive
a portion of its fee or reimburse other expenses of the Fund, but reserves
the right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting) shares
of Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife,
and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee
of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number
of investment companies. With over $110 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF CASH SERIES SHARES
Federated Securities Corp. is the principal distributor for Cash Series
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.50% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. The Plan is a
compensation-type plan. As such, the Fund makes no payments to the distributor
except as described above. Therefore, the Fund does not pay for unreimbursed
expenses of the distributor, including amounts expended by the distributor in
excess of amounts received by it from the Fund, interest, carrying or other
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able to recover
such amounts or may earn a profit from future payments made by the Fund under
the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS In addition to
payments made pursuant to the Distribution Plan and Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational, and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates. ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash Series
Shares from the value of Fund assets attributable to Cash Series Shares, and
dividing the remainder by the number of Cash Series Shares outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer), or by wire, or by
check directly from the Fund, with a minimum initial investment of $10,000 or
more over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve Wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Minnesota
Municipal Cash Trust--Cash Series Shares; Fund Number (this number can be found
on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement. PURCHASING SHARES BY
CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to Minnesota Municipal Cash Trust--Cash Series Shares. Please include an account
number on the check. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day after the check
is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service. REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund determines it necessary to terminate or modify the telephone redemption
privilege, shareholders will be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust. As of
November 24, 1997, Norwest Investment Services, Inc., Minneapolis, Minnesota,
owned 31.95% of the voting securities of the Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Minnesota. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
MINNESOTA TAXES
Under existing Minnesota laws, distributions made by the Fund will be exempt
from Minnesota regular personal income taxes provided that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
provided further that 95% of such distributions are derived from interest on
obligations issued by the State of Minnesota or any of its political or
governmental subdivisions, municipalities, or governmental agencies or
instrumentalities. Distributions made by the Fund will also be exempt to the
extent that they are derived from interest on federal obligations and are
reported federally as dividend income by shareholders. Conversely, to the extent
that distributions made by the Fund are derived from other types of obligations,
such distributions will be subject to Minnesota regular personal income taxes.
Dividends of the Fund are not exempt from Minnesota corporate income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary capacity and are subject to a minimum initial
investment of $25,000 over a 90-day period. Both classes are subject to certain
of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.04 0.03 0.02 0.03 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.04) (0.03) (0.02) (0.03) (0.05) (0.01)
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.48% 3.49% 3.82% 2.58% 2.43% 3.19% 4.89% 0.90%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.30% 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%*
Net investment income 3.42% 3.43% 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%*
Expense 0.51% 0.51% 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%*
waiver/reimbursement(c)
SUPPLEMENTAL DATA
Net assets, end of period $208,365 $217,443 $212,392 $159,704 $165,865 $245,168 $124,603 $75,904
(000 omitted)
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 10, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
MINNESOTA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.6%
MINNESOTA--96.7%
$ 6,000,000 Anoka City, MN Solid Waste Disposal Authority, 3.95% CP $ 6,000,000
(United Power Associates)/ (National Rural Utilities
Cooperative Finance Corp. GTD), Mandatory Tender 11/19/1997
2,050,000 Anoka, MN, Multifamily Housing Revenue Bonds Weekly VRDNs 2,050,000
(Walker Plaza Project)/ (U.S. Bank, N.A., Minneapolis LOC)
3,685,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV 3,685,000
Development Co. Project)/(Firstar Bank, Minnesota LOC)
2,210,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, 2,210,000
Inc.)/(Nationsbank, N.A., Charlotte LOC)
6,700,000 Becker, MN, PCR (Series 1993A & B), 3.75% CP (Northern
States 6,700,000 Power Co.), Mandatory Tender 12/17/1997
4,000,000 Becker, MN, PCR (Series 1993A & B), 3.80% CP (Northern
States 4,000,000 Power Co.), Mandatory Tender 2/18/1998
500,000 Beltrami County, MN, Environmental Control Authority Daily 500,000
VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland,
Zurich LOC)
1,400,000 Beltrami County, MN, Environmental Control Authority, (Series 1,400,000
1995) Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of
Switzerland, Zurich LOC)
2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series
2,855,000 1996) Weekly VRDNs (S & S of Minnesota, LLC
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
7,600,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding 7,600,000
Bonds (Series 1994B) Weekly VRDNs (Mall of America)/(FSA
INS)/(Credit Local de France LIQ)
2,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding 2,000,000
Bonds (Series 1996B) Weekly VRDNs (Mall of America)/(FSA
INS)/(Credit Local de France LIQ)
3,100,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now 3,100,000
Technologies, Inc. Project)/ (Norwest Bank Minnesota,
Minneapolis LOC)
5,000,000 Bloomington, MN, Multifamily Housing Weekly VRDNs 5,000,000
(Crow/Bloomington Apartments)/ (Citibank N.A., New York LOC)
3,960,000 Burnsville, MN, Adjustable Rate IDRB (Series 1996) Weekly 3,960,000
VRDNs (Caire, Inc. Project)/(Bank One, Wisconsin, N.A. LOC)
5,750,000 Burnsville, MN, Multifamily Housing Weekly VRDNs (Berkshire 5,750,000
of Burnsville)/(Sumitomo Bank Ltd., Osaka LOC)
2,550,025 Byron, MN IDB Weekly VRDNs (Schmidt Printing)/(Norwest
Bank 2,550,025 Minnesota, Minneapolis LOC)
1,240,000 Chanhassen, MN IDA, (Series 1995) Weekly VRDNs (Building 1,240,000
Management Group, L.L.C. Project)/(Norwest Bank Minnesota,
Minneapolis LOC)
1,700,000 Chaska, MN, GO Refunding Bonds of 1996, 3.80% Bonds, 1,698,249
12/1/1997
5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series 5,000,000
1996A) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse First
Boston LOC)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 2,800,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly $ 2,800,000
VRDNs (Health Central System)/ (U.S. Bank, N.A., Minneapolis
LOC)
2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly 2,350,000
VRDNs (Supervalue Inc.)/ (Wachovia Bank of Georgia N.A.,
Atlanta LOC)
10,745,000 (b)Dakota County & Washington County MN Housing & 10,745,000
Redevelopment Authority, MERLOTS (Series J), 4.15% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1997
1,505,000 (b)Dakota County, MN Housing & Redevelopment Authority,
1,505,000 (Custodial Receipts), 4.15% TOBs (GNMA
COL)/(Corestates Bank N.A., Philadelphia, PA LIQ),
Optional Tender 12/1/1997
3,000,000 (b)Dakota County, Washington County & Anoka City, MN Housing 3,000,000
& Redevelopment Authority, MERLOTS-Series H, 4.15% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1997
9,525,000 Duluth, MN, GO Tax and Aid Anticipation Certificates of 9,529,532
Indebtedness of 1997, 4.00% TANs, 12/31/1997
8,000,000 Eagan, MN, Multifamily Housing (Series 1992A) Weekly VRDNs 8,000,000
(Cinnamon Ridge)/(Mellon Bank N.A., Pittsburgh LOC)
835,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen 835,000
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,255,000 Eden Prairie, MN IDA, (Series 1996) Weekly VRDNs (Challenge 1,255,000
Printing, Inc. Project)/ (Norwest Bank Minnesota, Minneapolis
LOC)
1,405,000 Eden Prairie, MN IDA, (Series 1995) Weekly VRDNs (Robert 1,405,000
Lothenbach Project)/(Norwest Bank Minnesota, Minneapolis LOC)
850,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank 850,000
Minnesota, Minneapolis LOC)
2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington 2,945,000
Standard Corporation Project)/ (Norwest Bank Minnesota,
Minneapolis LOC)
960,000 Foley, MN Independent School District No. 051, 3.84% TANs 960,466
(Minnesota Tax and Aid Anticipation Borrowing Program GTD),
2/6/1998
5,200,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN 5,200,000
GTD)
5,550,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs (Hennepin Co. MN 5,550,000
GTD)
7,100,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly 7,100,000
VRDNs (Potlatch Corp.)/ (Credit Suisse First Boston LOC)
2,900,000 Lino Lakes, MN, Variable Rate Demand IDRBs (Series 1997) 2,900,000
Weekly VRDNs (Taylor Corp.)/ (Norwest Bank Minnesota,
Minneapolis LOC)
1,000,000 MN Insured Municipal Securities Trust, Series 1996A, Floating 1,000,000
Rate Certificates Weekly VRDNs (Eden Prairie MN, ISD
272)/(MBIA INS)/(Norwest Bank Minnesota, Minneapolis LIQ)
1,125,000 MN Insured Municipal Securities Trust, Series 1996B, Floating 1,125,000
Rate Certificates Weekly VRDNs (Eden Prairie MN, ISD
272)/(MBIA INS)/(Norwest Bank Minnesota, Minneapolis LIQ)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 2,500,000 MN Insured Municipal Securities Trust, Series 1996H, Floating $ 2,500,000
Rate Certificates Weekly VRDNs (St. Louis Park, MN Health
Care Facilities)/(AMBAC INS)/(Norwest Bank Minnesota,
Minneapolis LIQ)
2,250,000 MN Municipal Securities Trust, Series 1996D, Floating Rate 2,250,000
Certificates Weekly VRDNs (North St. Paul-Maplewood, MN ISD
622)/(Norwest Bank Minnesota, Minneapolis LIQ)
5,000,000 MN Municipal Securities Trust, Series 1996F, Floating Rate 5,000,000
Certificates Weekly VRDNs (Benedictine Health
System)/(Norwest Bank Minnesota, Minneapolis LIQ)
4,000,000 MN Municipal Securities Trust, Series 1996H, Floating Rate 4,000,000
Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA
INS)/(Norwest Bank Minnesota, Minneapolis LIQ)
3,900,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle 3,900,000
Ridge, MN Apartments)/ (Sumitomo Bank Ltd., Osaka LOC)
3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle 3,000,000
Ridge, MN Apartments)/ (Sumitomo Bank Ltd., Osaka LOC)
1,000,000 Maplewood, MN, (Series 1997) Weekly VRDNs (Camada Limited 1,000,000
Partnership)/(Norwest Bank Minnesota, Minneapolis LOC)
2,025,000 Maplewood, MN, Multifamily Housing (Series 1993) Weekly VRDNs 2,025,000
(Silver Ridge Project)/ (Federal Home Loan Bank of Chicago
LOC)
2,580,000 Mendota Heights, MN, Multifamily Revenue Bonds Weekly VRDNs 2,580,000
(Lexington Heights Apartments)/(Sumitomo Bank Ltd., Osaka
LOC)
14,555,000 Minneapolis CDA, Refunding Revenue Bonds Weekly VRDNs 14,555,000
(Riverplace Project (The Pinnacle Apartments))/(Sumitomo Bank
Ltd., Osaka LOC)
12,440,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995)
Weekly 12,440,000 VRDNs (Walker Methodist Health Center,
Inc. Project)/(U.S.
Bank, N.A., Minneapolis LOC)
680,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(U.S. Bank, N.A., 680,000
Minneapolis LOC)
6,600,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 6,600,000
10,500,000 Minneapolis, MN, Housing Development Revenue Refunding Bonds 10,500,000
(Series 1988) Weekly VRDNs (Symphony Place)/ (Citibank N.A.,
New York LOC)
900,000 Minneapolis, MN, Variable Rate Demand Commercial Development 900,000
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB &
Company Project)/(U.S. Bank, N.A., Minneapolis LOC)
6,100,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly 6,100,000
VRDNs (One Ten Grant Project)/(U.S. Bank, N.A., Minneapolis
LOC)
18,175,000 Minneapolis, MN, Various Purpose Bonds (Series 1996) Weekly 18,175,000
VRDNs (Bayerische Vereinsbank AG, Munich LIQ)
5,000,000 Minneapolis, MN, Various Purpose Bonds (Series 1997B) Weekly 5,000,000
VRDNs (Bayerische Vereinsbank AG, Munich LIQ)
50,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue 50,000
Bonds, 4.00% TOBs (GNMA COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 11/1/1997
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 3,860,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue $ 3,860,000
Bonds, MERLOTS (Series D), 4.10% TOBs (GNMA COL)/(Corestates
Bank N.A., Philadelphia, PA LIQ), Optional Tender 1/1/1998
8,000,000 Minnesota Agricultural and Economic Development Board, 8,000,000
(Series 1996) Weekly VRDNs (Evangelical Lutheran Good
Samaritan Society)/(Rabobank Nederland, Utrecht LOC)
8,000,000 Minnesota State Commissioner of Iron Range Resources & 8,000,000
Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-Pacific
Corp.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
2,675,000 Minnesota State HFA, Single Family Mortgage Bonds (Series J), 2,675,000
3.65% TOBs, Mandatory Tender 12/11/1997
6,400,000 Minnesota State HFA, Single Family Mortgage Bonds (Series K), 6,400,000
3.60% TOBs, Mandatory Tender 12/11/1997
3,800,000 Minnesota State Higher Education Coordinating Board, (Series 3,800,000
1992A) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
7,000,000 Minnesota State Higher Education Coordinating Board, 1992 7,000,000
(Series B) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
6,500,000 Minnesota State Higher Education Coordinating Board, 1992 6,500,000
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
12,700,000 Minnesota State Higher Education Coordinating Board, 1992 12,700,000
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
1,482,000 Minnesota State Higher Education Coordinating Board, 1,482,000
Supplemental Student Loan Program Refunding Revenue Bonds
(Series 1994A) Weekly VRDNs (Norwest Bank Minnesota,
Minneapolis LIQ)
11,705,000 Minnesota State, 4.625% Bonds, 8/1/1998 11,776,737
1,860,000 Minnesota State, 4.70% Bonds, 8/1/1998 1,872,311
5,000,000 Minnesota State, 5.50% Bonds, 8/1/1998 5,059,471
2,400,000 Minnesota State, 7.00% Bonds, 8/1/1998 2,456,022
3,825,000 Minnesota State, GO State Various Purpose Bonds, 5.00% Bonds, 3,825,000
11/1/1997
2,000,000 Minnesota Tax and Aid Anticipation Borrowing Program, (Series 2,000,000
B), 3.65% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 3/10/1998
5,000,000 Minnesota Tax and Aid Anticipation Borrowing Program, GO Aid 5,000,000
Anticipation Certificates of Indebtedness (Series 1997B),
3.85% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 9/3/1998
1,300,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos., 1,300,000
Inc.)/(Norwest Bank Minnesota, Minneapolis LOC)
5,900,000 Minnetonka, MN, Multifamily Housing Revenue Refunding Bonds 5,900,000
(Series 1995) Weekly VRDNs (Southampton Apartments Project
(MN))/(National Bank of Canada, Montreal LOC)
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, 1,300,000
Inc.)/(Banque Paribas, Paris LOC)
1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and 1,000,000
Hanson Printing Co.)/ (Norwest Bank Minnesota, Minneapolis
LOC)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 3,290,000 New Hope, MN Weekly VRDNs (Paddock Labs)/(U.S. Bank, N.A., $ 3,290,000
Minneapolis LOC)
2,245,000 Olmsted County, MN Building Authority, Certificates of 2,245,000
Participation Weekly VRDNs (Human Services
Infrastructure)/(Toronto-Dominion Bank LOC)
900,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/(Rabobank 900,000
Nederland, Utrecht LOC)
1,250,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank 1,250,000
Minnesota, Minneapolis LOC)
4,000,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic
Steel, 4,000,000 Inc.)/(National City Bank, Cleveland, OH
LOC)
1,180,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest 1,180,000
Bank Minnesota, Minneapolis LOC)
750,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing 750,000
Corp)/(KeyBank, N.A. LOC)
2,720,000 Rogers, MN IDA, IDRB Weekly VRDNs (DAC Development, LLC 2,720,000
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,500,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch Refining 1,500,000
Co.)
8,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs (St. 8,000,000
Francis Regional Medical Center)/(Citibank N.A., New York
LOC)
1,347,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue 1,347,500
Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis
LOC)
2,527,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue 2,527,500
Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis
LOC)
2,900,000 St. Cloud, MN, (Series 1997-A) Weekly VRDNs (The Saint Cloud 2,900,000
Hospital)/(Rabobank Nederland, Utrecht LOC)
4,800,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs 4,800,000
(District Cooling St Paul, Inc.)/(Credit Local de France LOC)
400,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs 400,000
(United Way)/(U.S. Bank, N.A., Minneapolis LOC)
300,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994) 300,000
Weekly VRDNs (Minnesota Children's Museum)/(U.S. Bank, N.A.,
Minneapolis LOC)
2,000,000 St. Paul, MN Housing & Redevelopment Authority, District 2,000,000
Cooling Revenue Bonds (1995 Series I) Weekly VRDNs (Credit
Local de France LOC)
2,000,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West 2,000,000
Gate Office)/(U.S. Bank, N.A., Minneapolis LOC)
1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs
(Blount, 1,000,000 Inc.)/(Nationsbank, N.A., Charlotte
LOC)
3,855,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc. 3,855,000
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,330,000 Victoria, MN, Industrial Development Revenue Bonds, (Series 1,330,000
1996B) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank
Minnesota, Minneapolis LOC)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 12,795,000 Washington County, MN Housing & Redevelopment Authority, $ 12,795,000
(Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo
Bank Ltd., Osaka LOC)
2,250,000 Wells, MN, 4.25% TOBs (Stokely, Inc.)/(Corestates Bank
N.A., 2,250,000 Philadelphia, PA LOC), Optional Tender
12/1/1997
7,440,000 White Bear Lake, MN Independent School District No. 624, GO 7,442,636
Tax Anticipation Certificates, 3.75% TANs (Minnesota Tax and
Aid Anticipation Borrowing Program)/(Minnesota Tax and Aid
Anticipation Borrowing Program GTD), 3/3/1998
1,105,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, 1,105,000
Inc.)/(Norwest Bank Minnesota, Minneapolis LOC)
2,095,000 White Bear, MN, Variable Rate Demand Industrial Revenue Bonds 2,095,000
Weekly VRDNs (N.A. Ternes Project)/(Firstar Bank, Minnesota
LOC)
2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting 2,000,000
Systems)/(Fleet National Bank, Providence, R.I. LOC)
TOTAL 415,497,449
PUERTO RICO--2.9%
7,948,000 ABN AMRO Chicago Corp. 1997A LeaseTOPS Trust Weekly VRDNs 7,639,429
(Commonwealth of Puerto Rico Municipal Revenues Collection
Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/(State Street
Bank and Trust Co. LOC)
5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 5,000,000
Tender 1/14/1998
TOTAL 12,639,429
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 428,136,878
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 32.2% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation, MIG1, or MIG-2 by Moody's Investors Service, Inc., F-1+,
F-1, and F-2 by Fitch Investors Service, Inc. are considered rated in one of the
two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$19,160,000 which represents 4.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($429,592,418) at October 31, 1997.
The following acronyms are used throughout this portfolio: AMBAC --American
Municipal Bond Assurance Corporation CDA --Community Development Administration
COL --Collateralized CP --Commercial Paper FSA --Financial Security Assurance
GNMA --Government National Mortgage Association GO --General Obligation GTD
- --Guaranty HFA --Housing Finance Authority IDA --Industrial Development
Authority IDB --Industrial Development Bond IDR --Industrial Development Revenue
IDRB --Industrial Development Revenue Bond INS --Insured ISD --Independent
School District LIQ --Liquidity Agreement LLC --Limited Liability Corporation
LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PCR --Pollution
Control Revenue SFM --Single Family Mortgage TANs --Tax Anticipation Notes TOBs
- --Tender Option Bonds VRDNs --Variable Rate Demand Notes (See Notes which are an
integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MINNESOTA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 428,136,878
Cash 55,527
Income receivable 3,034,373
Receivable for shares sold 4,667
Total assets 431,231,445
LIABILITIES:
Payable for shares redeemed $ 880,609
Income distribution payable 614,530
Accrued expenses 143,888
Total liabilities 1,639,027
Net Assets for 429,592,418 shares outstanding $ 429,592,418
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$208,365,493 / 208,365,493 shares outstanding $1.00
CASH SERIES SHARES:
$221,226,925 / 221,226,925 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MINNESOTA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 16,713,357
EXPENSES:
Investment advisory fee $ 1,795,783
Administrative personnel and services fee 338,975
Custodian fees 34,973
Transfer and dividend disbursing agent fees and 162,930
expenses
Directors'/Trustees' fees 4,966
Auditing fees 13,044
Legal fees 10,026
Portfolio accounting fees 104,395
Distribution services fee--Cash Series Shares 1,108,546
Shareholder services fee--Institutional Shares 567,904
Shareholder services fee--Cash Series Shares 554,461
Share registration costs 47,586
Printing and postage 18,019
Insurance premiums 5,340
Taxes 786
Miscellaneous 5,257
Total expenses 4,772,991
Waivers--
Waiver of investment advisory fee $ (1,181,776)
Waiver of distribution services fee--Cash Series (554,085)
Shares
Waiver of shareholder services fee--Institutional (567,904)
Shares
Total waivers (2,303,765)
Net expenses 2,469,226
Net investment income $ 14,244,131
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 14,244,131 $ 12,971,151
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (7,772,322) (7,706,768)
Cash Series Shares (6,471,809) (5,264,383)
Change in net assets resulting from distributions to (14,244,131) (12,971,151)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,220,304,237 1,294,216,493
Net asset value of shares issued to shareholders in payment 6,706,186 5,465,115
of distributions declared
Cost of shares redeemed (1,250,475,198) (1,190,487,756)
Change in net assets resulting from share transactions (23,464,775) 109,193,852
Change in net assets (23,464,775) 109,193,852
NET ASSETS:
Beginning of period 453,057,193 343,863,341
End of period $ 429,592,418 $ 453,057,193
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MINNESOTA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Minnesota Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Cash Series Shares. The
investment objective of the Fund is current income exempt from federal regular
income tax and the regular personal income taxes imposed by the State of
Minnesota consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Dakota County & Washington County MN
Housing & Redevelopment Authority,
MERLOTS (Series J) 9/1/1997 10,745,000
Dakota County MN Housing &
Redevelopment Authority,
(Custodial Receipts) 9/1/1997 1,505,000
Dakota County, Washington County
& Anoka City, MN Housing &
Redevelopment Authority, MERLOTS-
Series H 9/1/1997 3,000,000
Minneapolis/St. Paul MN Housing
Finance Board, SFM Revenue Bonds 5/1/1997 50,000
Minneapolis/St. Paul MN Housing
Finance Board, SFM Revenue Bonds,
MERLOTS (Series D) 8/1/1997 3,860,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $429,592,418.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
Shares sold 596,921,325 547,719,129
Shares issued to shareholders in payment of distributions
declared 323,548 301,311
Shares redeemed (606,322,424) (542,969,267)
Net change resulting from Institutional Service
Shares transactions (9,077,551) 5,051,173
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
CASH SERIES SHARES 1997 1996
Shares sold 623,382,912 746,497,364
Shares issued to shareholders in payment of distributions
declared 6,382,638 5,163,804
Shares redeemed (644,152,774) (647,518,489)
Net change resulting from Institutional Shares transactions (14,387,224) 104,142,679
Net change resulting from share transactions (23,464,775) 109,193,852
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp., the principal distributor, from the net assets of the Fund to
finance activities intended to result in the sale of the Fund's Cash Series
Shares. The Plan provides that the Fund may incur distribution expenses up to
0.50% of the average daily net assets of the Cash Series Shares, annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $603,306,130 and $563,566,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 69.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.9% of total investments. REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(MINNESOTA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, the related statement of operations for the
year then ended, and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
MINNESOTA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Cash Series Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
MINNESOTA MUNICIPAL CASH TRUST 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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229873
0082715A-CSS (12/97)
Minnesota Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Minnesota Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term Minnesota municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of Minnesota, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and regular personal income taxes imposed by the
State of Minnesota consistent with stability of principal. THE SHARES OFFERED BY
THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS
IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997 TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Institutional Shares 2 General
Information 3 Investment Information 3 Investment Policies 3 Minnesota
Municipal Securities 5 Investment Risks 5 Investment Limitations 6 Fund
Information 6 Management of the Fund 6 Distribution of Institutional Shares 6
Administration of the Fund 7 Net Asset Value 7 How to Purchase Shares 7
Purchasing Shares by Wire 7 Purchasing Shares by Check 8 How to Redeem Shares 8
Redeeming Shares by Telephone 8 Redeeming Shares by Mail 8 Account and Share
Information 8 Dividends 8 Capital Gains 9 Confirmations and Account Statements
9 Accounts with Low Balances 9 Voting Rights 9 Tax Information 9 Federal Income
Tax 9 State and Local Taxes 9 Other Classes of Shares 10 Performance
Information 10 Financial Highlights--Cash Series Shares 11 Financial Statements
12 Report of Independent Public Accountants Inside Back Cover
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as apercentage
of offering price) None Contingent Deferred Sales Charge (as a percentage of
original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.14%
12b-1 Fee None
Total Other Expenses 0.16%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.30%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.81% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 Year $3
3 Years $10
5 Years $17
10 Years $38
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.04 0.03 0.02 0.03 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net (0.03) (0.03) (0.04) (0.03) (0.02) (0.03) (0.05) (0.01)
investment income
NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
PERIOD
TOTAL RETURN(B) 3.48% 3.49% 3.82% 2.58% 2.43% 3.19% 4.89% 0.90%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.30% 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%*
Net investment income 3.42% 3.43% 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%*
Expense 0.51% 0.51% 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%*
waiver/reimbursement(c)
SUPPLEMENTAL DATA
Net assets, end of period $208,365 $217,443 $212,392 $159,704 $165,865 $245,168 $124,603 $75,904
(000 omitted)
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 10, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Cash Series Shares. This prospectus relates only to Institutional Shares of the
Fund, which are designed primarily for financial institutions acting in a
fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Minnesota municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Minnesota taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
The investment objective of the Fund is current income exempt from federal
regular income tax and the regular personal income taxes imposed by the State of
Minnesota consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, the Fund invests its assets so that (1) at least
80% of the Fund's annual interest income will be exempt from federal regular
income tax and Minnesota regular personal income tax ("exempt interest
dividends"); and (2) at least 95% of the exempt interest dividends that the Fund
pays to its shareholders will derive from interest income from Minnesota
municipal obligations. The remaining 5% of such exempt interest dividends paid
to shareholders will derive either from interest income on Minnesota municipal
securities or interest income which is exempt from both federal regular and
Minnesota regular personal income taxes. (Federal regular income tax does not
include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective. ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Minnesota and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Minnesota state income
tax imposed upon non-corporate taxpayers ("Minnesota Municipal Securities").
Examples of Minnesota Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable
or floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause
the securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand notes
as maturing on the later of the date of the next interest rate adjustment or
the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Minnesota Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the
underlying Minnesota Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation interest in any of the above. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. As a matter of fundamental investment policy, which cannot be
changed without shareholder approval, the Fund will not invest more than 10% of
its net assets in restricted securities except for certain restricted securities
that meet the criteria for liquidity established by the Trustees. As a matter of
non-fundamental investment policy, the Fund will limit investments in illiquid
securities, including illiquid restricted securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Minnesota
Municipal Securities is subject to the federal alternative minimum tax.
MINNESOTA MUNICIPAL SECURITIES
Minnesota Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Minnesota Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Minnesota Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Minnesota Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Minnesota Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Minnesota
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Minnesota Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Minnesota Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Minnesota Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Minnesota Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. These investment limitations cannot be
changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting) shares
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors. Federated Management and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. With over $110 billion invested
across more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern
time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, Monday through Friday, except on New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Minnesota
Municipal Cash Trust--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement. PURCHASING SHARES BY
CHECK Shares may be purchased by sending a check to Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made
payable to: Minnesota Municipal Cash Trust--Institutional Shares. Please include
an account number on the check. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares by Mail" should be considered. If at any time the
Fund determines it necessary to terminate or modify the telephone redemption
privilege, shareholders will be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust. As of
November 24, 1997, VAR & Company, St. Paul, Minnesota, owned 59.13% of the
voting securities of theFund, and, therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Minnesota. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
MINNESOTA TAXES
Under existing Minnesota laws, distributions made by the Fund will be exempt
from Minnesota regular personal income taxes provided that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
provided further that 95% of such distributions are derived from interest on
obligations issued by the State of Minnesota or any of its political or
governmental subdivisions, municipalities, or governmental agencies or
instrumentalities. Distributions made by the Fund will also be exempt to the
extent that they are derived from interest on federal obligations and are
reported federally as dividend income by shareholders. Conversely, to the extent
that distributions made by the Fund are derived from other types of obligations,
such distributions will be subject to Minnesota regular personal income taxes.
Dividends of the Fund are not exempt from Minnesota corporate income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Cash Series Shares. Cash
Series Shares are sold at net asset value primarily to retail customers of
financial institutions and are subject to a minimum initial investment of
$10,000 over a 90-day period. Both classes are subject to certain of the same
expenses. Cash Series Shares are distributed under a 12b-1 Plan adopted by the
Fund and also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--CASH SERIES SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
income
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.97% 2.97% 3.41% 2.17% 2.02% 2.78% 3.60%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.70% 0.71% 0.71% 0.71% 0.64%*
Net investment income 2.92% 2.93% 3.37% 2.15% 2.01% 2.75% 4.11%*
Expense waiver/reimbursement(c) 0.51% 0.51% 0.62% 0.61% 0.44% 0.44% 0.59%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $221,227 $235,614 $131,471 $94,335 $67,521 $75,044 $69,747
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 7, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
MINNESOTA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.6%
MINNESOTA--96.7%
$ 6,000,000 Anoka City, MN Solid Waste Disposal Authority, 3.95% CP $ 6,000,000
(United Power Associates)/ (National Rural Utilities
Cooperative Finance Corp. GTD), Mandatory Tender 11/19/1997
2,050,000 Anoka, MN, Multifamily Housing Revenue Bonds Weekly VRDNs 2,050,000
(Walker Plaza Project)/ (U.S. Bank, N.A., Minneapolis LOC)
3,685,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV 3,685,000
Development Co. Project)/(Firstar Bank, Minnesota LOC)
2,210,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, 2,210,000
Inc.)/(Nationsbank, N.A., Charlotte LOC)
6,700,000 Becker, MN, PCR (Series 1993A & B), 3.75% CP (Northern
States 6,700,000 Power Co.), Mandatory Tender 12/17/1997
4,000,000 Becker, MN, PCR (Series 1993A & B), 3.80% CP (Northern
States 4,000,000 Power Co.), Mandatory Tender 2/18/1998
500,000 Beltrami County, MN, Environmental Control Authority Daily 500,000
VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland,
Zurich LOC)
1,400,000 Beltrami County, MN, Environmental Control Authority, (Series 1,400,000
1995) Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of
Switzerland, Zurich LOC)
2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series
2,855,000 1996) Weekly VRDNs (S & S of Minnesota, LLC
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
7,600,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding 7,600,000
Bonds (Series 1994B) Weekly VRDNs (Mall of America)/(FSA
INS)/(Credit Local de France LIQ)
2,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding 2,000,000
Bonds (Series 1996B) Weekly VRDNs (Mall of America)/(FSA
INS)/(Credit Local de France LIQ)
3,100,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now 3,100,000
Technologies, Inc. Project)/ (Norwest Bank Minnesota,
Minneapolis LOC)
5,000,000 Bloomington, MN, Multifamily Housing Weekly VRDNs 5,000,000
(Crow/Bloomington Apartments)/ (Citibank N.A., New York LOC)
3,960,000 Burnsville, MN, Adjustable Rate IDRB (Series 1996) Weekly 3,960,000
VRDNs (Caire, Inc. Project)/(Bank One, Wisconsin, N.A. LOC)
5,750,000 Burnsville, MN, Multifamily Housing Weekly VRDNs (Berkshire 5,750,000
of Burnsville)/(Sumitomo Bank Ltd., Osaka LOC)
2,550,025 Byron, MN IDB Weekly VRDNs (Schmidt Printing)/(Norwest
Bank 2,550,025 Minnesota, Minneapolis LOC)
1,240,000 Chanhassen, MN IDA, (Series 1995) Weekly VRDNs (Building 1,240,000
Management Group, L.L.C. Project)/(Norwest Bank Minnesota,
Minneapolis LOC)
1,700,000 Chaska, MN, GO Refunding Bonds of 1996, 3.80% Bonds, 1,698,249
12/1/1997
5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series 5,000,000
1996A) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse First
Boston LOC)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 2,800,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly $ 2,800,000
VRDNs (Health Central System)/ (U.S. Bank, N.A., Minneapolis
LOC)
2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly 2,350,000
VRDNs (Supervalue Inc.)/ (Wachovia Bank of Georgia N.A.,
Atlanta LOC)
10,745,000 (b)Dakota County & Washington County MN Housing & 10,745,000
Redevelopment Authority, MERLOTS (Series J), 4.15% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1997
1,505,000 (b)Dakota County, MN Housing & Redevelopment Authority,
1,505,000 (Custodial Receipts), 4.15% TOBs (GNMA
COL)/(Corestates Bank N.A., Philadelphia, PA LIQ),
Optional Tender 12/1/1997
3,000,000 (b)Dakota County, Washington County & Anoka City, MN Housing 3,000,000
& Redevelopment Authority, MERLOTS-Series H, 4.15% TOBs
(United States Treasury COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 12/1/1997
9,525,000 Duluth, MN, GO Tax and Aid Anticipation Certificates of 9,529,532
Indebtedness of 1997, 4.00% TANs, 12/31/1997
8,000,000 Eagan, MN, Multifamily Housing (Series 1992A) Weekly VRDNs 8,000,000
(Cinnamon Ridge)/(Mellon Bank N.A., Pittsburgh LOC)
835,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen 835,000
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,255,000 Eden Prairie, MN IDA, (Series 1996) Weekly VRDNs (Challenge 1,255,000
Printing, Inc. Project)/ (Norwest Bank Minnesota, Minneapolis
LOC)
1,405,000 Eden Prairie, MN IDA, (Series 1995) Weekly VRDNs (Robert 1,405,000
Lothenbach Project)/(Norwest Bank Minnesota, Minneapolis LOC)
850,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank 850,000
Minnesota, Minneapolis LOC)
2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington 2,945,000
Standard Corporation Project)/ (Norwest Bank Minnesota,
Minneapolis LOC)
960,000 Foley, MN Independent School District No. 051, 3.84% TANs 960,466
(Minnesota Tax and Aid Anticipation Borrowing Program GTD),
2/6/1998
5,200,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN 5,200,000
GTD)
5,550,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs (Hennepin Co. MN 5,550,000
GTD)
7,100,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly 7,100,000
VRDNs (Potlatch Corp.)/ (Credit Suisse First Boston LOC)
2,900,000 Lino Lakes, MN, Variable Rate Demand IDRBs (Series 1997) 2,900,000
Weekly VRDNs (Taylor Corp.)/ (Norwest Bank Minnesota,
Minneapolis LOC)
1,000,000 MN Insured Municipal Securities Trust, Series 1996A, Floating 1,000,000
Rate Certificates Weekly VRDNs (Eden Prairie MN, ISD
272)/(MBIA INS)/(Norwest Bank Minnesota, Minneapolis LIQ)
1,125,000 MN Insured Municipal Securities Trust, Series 1996B, Floating 1,125,000
Rate Certificates Weekly VRDNs (Eden Prairie MN, ISD
272)/(MBIA INS)/(Norwest Bank Minnesota, Minneapolis LIQ)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 2,500,000 MN Insured Municipal Securities Trust, Series 1996H, Floating $ 2,500,000
Rate Certificates Weekly VRDNs (St. Louis Park, MN Health
Care Facilities)/(AMBAC INS)/(Norwest Bank Minnesota,
Minneapolis LIQ)
2,250,000 MN Municipal Securities Trust, Series 1996D, Floating Rate 2,250,000
Certificates Weekly VRDNs (North St. Paul-Maplewood, MN ISD
622)/(Norwest Bank Minnesota, Minneapolis LIQ)
5,000,000 MN Municipal Securities Trust, Series 1996F, Floating Rate 5,000,000
Certificates Weekly VRDNs (Benedictine Health
System)/(Norwest Bank Minnesota, Minneapolis LIQ)
4,000,000 MN Municipal Securities Trust, Series 1996H, Floating Rate 4,000,000
Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA
INS)/(Norwest Bank Minnesota, Minneapolis LIQ)
3,900,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle 3,900,000
Ridge, MN Apartments)/ (Sumitomo Bank Ltd., Osaka LOC)
3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle 3,000,000
Ridge, MN Apartments)/ (Sumitomo Bank Ltd., Osaka LOC)
1,000,000 Maplewood, MN, (Series 1997) Weekly VRDNs (Camada Limited 1,000,000
Partnership)/(Norwest Bank Minnesota, Minneapolis LOC)
2,025,000 Maplewood, MN, Multifamily Housing (Series 1993) Weekly VRDNs 2,025,000
(Silver Ridge Project)/ (Federal Home Loan Bank of Chicago
LOC)
2,580,000 Mendota Heights, MN, Multifamily Revenue Bonds Weekly VRDNs 2,580,000
(Lexington Heights Apartments)/(Sumitomo Bank Ltd., Osaka
LOC)
14,555,000 Minneapolis CDA, Refunding Revenue Bonds Weekly VRDNs 14,555,000
(Riverplace Project (The Pinnacle Apartments))/(Sumitomo Bank
Ltd., Osaka LOC)
12,440,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995)
Weekly 12,440,000 VRDNs (Walker Methodist Health Center,
Inc. Project)/(U.S.
Bank, N.A., Minneapolis LOC)
680,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(U.S. Bank, N.A., 680,000
Minneapolis LOC)
6,600,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 6,600,000
10,500,000 Minneapolis, MN, Housing Development Revenue Refunding Bonds 10,500,000
(Series 1988) Weekly VRDNs (Symphony Place)/ (Citibank N.A.,
New York LOC)
900,000 Minneapolis, MN, Variable Rate Demand Commercial Development 900,000
Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB &
Company Project)/(U.S. Bank, N.A., Minneapolis LOC)
6,100,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly 6,100,000
VRDNs (One Ten Grant Project)/(U.S. Bank, N.A., Minneapolis
LOC)
18,175,000 Minneapolis, MN, Various Purpose Bonds (Series 1996) Weekly 18,175,000
VRDNs (Bayerische Vereinsbank AG, Munich LIQ)
5,000,000 Minneapolis, MN, Various Purpose Bonds (Series 1997B) Weekly 5,000,000
VRDNs (Bayerische Vereinsbank AG, Munich LIQ)
50,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue 50,000
Bonds, 4.00% TOBs (GNMA COL)/(Corestates Bank N.A.,
Philadelphia, PA LIQ), Optional Tender 11/1/1997
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 3,860,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue $ 3,860,000
Bonds, MERLOTS (Series D), 4.10% TOBs (GNMA COL)/(Corestates
Bank N.A., Philadelphia, PA LIQ), Optional Tender 1/1/1998
8,000,000 Minnesota Agricultural and Economic Development Board, 8,000,000
(Series 1996) Weekly VRDNs (Evangelical Lutheran Good
Samaritan Society)/(Rabobank Nederland, Utrecht LOC)
8,000,000 Minnesota State Commissioner of Iron Range Resources & 8,000,000
Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-Pacific
Corp.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
2,675,000 Minnesota State HFA, Single Family Mortgage Bonds (Series J), 2,675,000
3.65% TOBs, Mandatory Tender 12/11/1997
6,400,000 Minnesota State HFA, Single Family Mortgage Bonds (Series K), 6,400,000
3.60% TOBs, Mandatory Tender 12/11/1997
3,800,000 Minnesota State Higher Education Coordinating Board, (Series 3,800,000
1992A) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
7,000,000 Minnesota State Higher Education Coordinating Board, 1992 7,000,000
(Series B) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
6,500,000 Minnesota State Higher Education Coordinating Board, 1992 6,500,000
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
12,700,000 Minnesota State Higher Education Coordinating Board, 1992 12,700,000
(Series C) Weekly VRDNs (U.S. Bank, N.A., Minneapolis LIQ)
1,482,000 Minnesota State Higher Education Coordinating Board, 1,482,000
Supplemental Student Loan Program Refunding Revenue Bonds
(Series 1994A) Weekly VRDNs (Norwest Bank Minnesota,
Minneapolis LIQ)
11,705,000 Minnesota State, 4.625% Bonds, 8/1/1998 11,776,737
1,860,000 Minnesota State, 4.70% Bonds, 8/1/1998 1,872,311
5,000,000 Minnesota State, 5.50% Bonds, 8/1/1998 5,059,471
2,400,000 Minnesota State, 7.00% Bonds, 8/1/1998 2,456,022
3,825,000 Minnesota State, GO State Various Purpose Bonds, 5.00% Bonds, 3,825,000
11/1/1997
2,000,000 Minnesota Tax and Aid Anticipation Borrowing Program, (Series 2,000,000
B), 3.65% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 3/10/1998
5,000,000 Minnesota Tax and Aid Anticipation Borrowing Program, GO Aid 5,000,000
Anticipation Certificates of Indebtedness (Series 1997B),
3.85% TANs (Minnesota Tax and Aid Anticipation Borrowing
Program GTD), 9/3/1998
1,300,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos., 1,300,000
Inc.)/(Norwest Bank Minnesota, Minneapolis LOC)
5,900,000 Minnetonka, MN, Multifamily Housing Revenue Refunding Bonds 5,900,000
(Series 1995) Weekly VRDNs (Southampton Apartments Project
(MN))/(National Bank of Canada, Montreal LOC)
1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, 1,300,000
Inc.)/(Banque Paribas, Paris LOC)
1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and 1,000,000
Hanson Printing Co.)/ (Norwest Bank Minnesota, Minneapolis
LOC)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 3,290,000 New Hope, MN Weekly VRDNs (Paddock Labs)/(U.S. Bank, N.A., $ 3,290,000
Minneapolis LOC)
2,245,000 Olmsted County, MN Building Authority, Certificates of 2,245,000
Participation Weekly VRDNs (Human Services
Infrastructure)/(Toronto-Dominion Bank LOC)
900,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/(Rabobank 900,000
Nederland, Utrecht LOC)
1,250,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank 1,250,000
Minnesota, Minneapolis LOC)
4,000,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic
Steel, 4,000,000 Inc.)/(National City Bank, Cleveland, OH
LOC)
1,180,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest 1,180,000
Bank Minnesota, Minneapolis LOC)
750,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing 750,000
Corp)/(KeyBank, N.A. LOC)
2,720,000 Rogers, MN IDA, IDRB Weekly VRDNs (DAC Development, LLC 2,720,000
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,500,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch Refining 1,500,000
Co.)
8,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs (St. 8,000,000
Francis Regional Medical Center)/(Citibank N.A., New York
LOC)
1,347,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue 1,347,500
Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis
LOC)
2,527,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue 2,527,500
Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's
Incorporated Project)/(Norwest Bank Minnesota, Minneapolis
LOC)
2,900,000 St. Cloud, MN, (Series 1997-A) Weekly VRDNs (The Saint Cloud 2,900,000
Hospital)/(Rabobank Nederland, Utrecht LOC)
4,800,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs 4,800,000
(District Cooling St Paul, Inc.)/(Credit Local de France LOC)
400,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs 400,000
(United Way)/(U.S. Bank, N.A., Minneapolis LOC)
300,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994) 300,000
Weekly VRDNs (Minnesota Children's Museum)/(U.S. Bank, N.A.,
Minneapolis LOC)
2,000,000 St. Paul, MN Housing & Redevelopment Authority, District 2,000,000
Cooling Revenue Bonds (1995 Series I) Weekly VRDNs (Credit
Local de France LOC)
2,000,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West 2,000,000
Gate Office)/(U.S. Bank, N.A., Minneapolis LOC)
1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs
(Blount, 1,000,000 Inc.)/(Nationsbank, N.A., Charlotte
LOC)
3,855,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc. 3,855,000
Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,330,000 Victoria, MN, Industrial Development Revenue Bonds, (Series 1,330,000
1996B) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank
Minnesota, Minneapolis LOC)
</TABLE>
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MINNESOTA--CONTINUED
$ 12,795,000 Washington County, MN Housing & Redevelopment Authority, $ 12,795,000
(Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo
Bank Ltd., Osaka LOC)
2,250,000 Wells, MN, 4.25% TOBs (Stokely, Inc.)/(Corestates Bank
N.A., 2,250,000 Philadelphia, PA LOC), Optional Tender
12/1/1997
7,440,000 White Bear Lake, MN Independent School District No. 624, GO 7,442,636
Tax Anticipation Certificates, 3.75% TANs (Minnesota Tax and
Aid Anticipation Borrowing Program)/(Minnesota Tax and Aid
Anticipation Borrowing Program GTD), 3/3/1998
1,105,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, 1,105,000
Inc.)/(Norwest Bank Minnesota, Minneapolis LOC)
2,095,000 White Bear, MN, Variable Rate Demand Industrial Revenue Bonds 2,095,000
Weekly VRDNs (N.A. Ternes Project)/(Firstar Bank, Minnesota
LOC)
2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting 2,000,000
Systems)/(Fleet National Bank, Providence, R.I. LOC)
&NBSP;&NBSP;&NBSP;&NBSP;TOTAL 415,497,449
PUERTO RICO--2.9%
7,948,000 ABN AMRO Chicago Corp. 1997A LeaseTOPS Trust Weekly VRDNs 7,639,429
(Commonwealth of Puerto Rico Municipal Revenues Collection
Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/(State Street
Bank and Trust Co. LOC)
5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 5,000,000
Tender 1/14/1998
&NBSP;&NBSP;&NBSP;&NBSP;TOTAL 12,639,429
&NBSP;&NBSP;&NBSP;&NBSP;TOTAL INVESTMENTS (AT AMORTIZED $ 428,136,878
COST)(C)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 32.2% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $19,160,000 which represents 4.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($429,592,418) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation CDA --Community
Development Administration COL --Collateralized CP --Commercial Paper FSA
- --Financial Security Assurance GNMA --Government National Mortgage Association
GO --General Obligation GTD --Guaranty HFA --Housing Finance Authority IDA
- --Industrial Development Authority IDB --Industrial Development Bond IDR
- --Industrial Development Revenue IDRB --Industrial Development Revenue Bond INS
- --Insured ISD --Independent School District LIQ --Liquidity Agreement LLC
- --Limited Liability Corporation LOC --Letter of Credit MBIA --Municipal Bond
Investors Assurance PCR --Pollution Control Revenue SFM --Single Family Mortgage
TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate
Demand Notes (See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MINNESOTA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 428,136,878
Cash 55,527
Income receivable 3,034,373
Receivable for shares sold 4,667
Total assets 431,231,445
LIABILITIES:
Payable for shares redeemed $ 880,609
Income distribution payable 614,530
Accrued expenses 143,888
Total liabilities 1,639,027
Net Assets for 429,592,418 shares outstanding $ 429,592,418
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$208,365,493 / 208,365,493 shares outstanding $1.00
CASH SERIES SHARES:
$221,226,925 / 221,226,925 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MINNESOTA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 16,713,357
EXPENSES:
Investment advisory fee $ 1,795,783
Administrative personnel and services fee 338,975
Custodian fees 34,973
Transfer and dividend disbursing agent fees and expenses 162,930
Directors'/Trustees' fees 4,966
Auditing fees 13,044
Legal fees 10,026
Portfolio accounting fees 104,395
Distribution services fee--Cash Series Shares 1,108,546
Shareholder services fee--Institutional Shares 567,904
Shareholder services fee--Cash Series Shares 554,461
Share registration costs 47,586
Printing and postage 18,019
Insurance premiums 5,340
Taxes 786
Miscellaneous 5,257
Total expenses 4,772,991
Waivers--
Waiver of investment advisory fee $ (1,181,776)
Waiver of distribution services fee--Cash Series (554,085)
Shares
Waiver of shareholder services fee--Institutional (567,904)
Shares
Total waivers (2,303,765)
Net expenses 2,469,226
Net investment income $ 14,244,131
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MINNESOTA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 14,244,131 $ 12,971,151
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (7,772,322) (7,706,768)
Cash Series Shares (6,471,809) (5,264,383)
Change in net assets resulting from distributions to (14,244,131) (12,971,151)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,220,304,237 1,294,216,493
Net asset value of shares issued to shareholders in payment 6,706,186 5,465,115
of distributions declared
Cost of shares redeemed (1,250,475,198) (1,190,487,756)
Change in net assets resulting from share transactions (23,464,775) 109,193,852
Change in net assets (23,464,775) 109,193,852
NET ASSETS:
Beginning of period 453,057,193 343,863,341
End of period $ 429,592,418 $ 453,057,193
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MINNESOTA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Minnesota Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Cash Series Shares. The
investment objective of the Fund is current income exempt from federal regular
income tax and the regular personal income taxes imposed by the State of
Minnesota consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Dakota County & Washington County MN
Housing & Redevelopment Authority, MERLOTS (Series J) 9/1/1997 10,745,000
Dakota County MN Housing & Redevelopment Authority,
(Custodial Receipts) 9/1/1997 1,505,000
Dakota County, Washington County & Anoka City, MN
Housing & Redevelopment Authority, MERLOTS-Series H 9/1/1997 3,000,000
Minneapolis/St. Paul MN Housing Finance Board,
SFM Revenue Bonds 5/1/1997 50,000
Minneapolis/St. Paul MN Housing Finance Board,
SFM Revenue Bonds, MERLOTS (Series D) 8/1/1997 3,860,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $429,592,418.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
<S> <C> <C>
Institutional Shares 1997 1996
Shares sold 596,921,325 547,719,129
Shares issued to shareholders in payment of distributions 323,548 301,311
declared
Shares redeemed (606,322,424) (542,969,267)
Net change resulting from Institutional Service Shares (9,077,551) 5,051,173
transactions
<CAPTION>
Year Ended October 31,
<S> <C> <C>
Cash Series Shares 1997 1996
Shares sold 623,382,912 746,497,364
Shares issued to shareholders in payment of distributions 6,382,638 5,163,804
declared
Shares redeemed (644,152,774) (647,518,489)
Net change resulting from Institutional Shares transactions (14,387,224) 104,142,679
Net change resulting from share transactions (23,464,775) 109,193,852
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp., the principal distributor, from the net assets of the Fund to
finance activities intended to result in the sale of the Fund's Cash Series
Shares. The Plan provides that the Fund may incur distribution expenses up to
0.50% of the average daily net assets of the Cash Series Shares, annually, to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $603,306,130 and $563,566,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 69.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(MINNESOTA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, the related statement of operations for the
year then ended, and the statement of changes in net assets and the financial
highlights (see pages 2 and 11 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]Federated Investors
Minnesota Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
MINNESOTA MUNICIPAL CASH TRUST INSTITUTIONAL 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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229402
0082715A-IS (12/97)
[Graphic]
MINNESOTA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Cash Series Shares
Institutional Shares
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus(es)
of Minnesota Municipal Cash Trust (the "Fund"), a portfolio of Federated
Municipal Trust (the "Trust") dated December 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.
MINNESOTA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
STATEMENT DATED DECEMBER 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-245-7400
www.federatedinvestors.com
Cusip 314229873
Cusip 314229402
0082715B (12/97)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
Minnesota Investment Risks 2
Limits on Taxing and Spending Authority 2
Investment Limitations 3
Selling Short and Buying on Margin 3
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Investing in Restricted Securities 3
Underwriting 3
Concentration of Investments 3
Investments in Any One Issuer 4
Investing in Illiquid Securities 4
Investing for Control 4
Investing in Options 4
Regulatory Compliance 4
Federated Municipal Trust Management 5
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
Investment Advisory Services 9
Investment Adviser 9
Advisory Fees 10
Brokerage Transactions 10
Other Services 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 10
Distribution Plan and Shareholder Services 11
Determining Net Asset Value 11
Redemption in Kind 11
Massachusetts Partnership Law 12
The Fund's Tax Status 12
Performance Information 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 12
Total Return 13
Performance Comparisons 13
Economic and Market Information 14
About Federated Investors 14
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank Broker/ Dealer Subsidiaries 14
Appendix 15
</TABLE>
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
MINNESOTA INVESTMENT RISKS
Minnesota has a diversified economy, the structure of which has increasingly
come to resemble the nation as a whole. Minnesota's emergence as a regional
center is evidenced by the comparatively high rates of employment growth in
trade, finance, insurance, and service industries over the past ten years.
Agriculture, which had been severely affected since 1981, appears to be
improving with land values now stabilizing at levels seen in the early 1980s.
State unemployment rates remain below the national level; and personal income
has grown more rapidly than that of the nation as a whole, with personal income
per capita remaining slightly above the national average.
Following a period of volatility in the early 1980s, Minnesota's fiscal
operations have been recently characterized by a strong financial position and
moderate debt burden. Minnesota has disciplined its budget process through
frequent reviews of revenue forecasts and timely legislative action. For fiscal
1997, the state expects to achieve a balanced budget without revenue increases
or one-time revenues. In addition, the state maintains two statutory reserves
for cash flow and budgetary purposes which, together, represent over 6% of
General Fund revenues. The state's budget forecast calls for additions to be
made to these reserves in fiscal 1997.
Minnesota's debt position is excellent with nearly exclusive use of general
obligation bonds. Amortization of general obligation debt is rapid, with nearly
three-quarters due within ten years, fully characteristic of high-quality
borrowers. Debt service requirements are a mere 3% of annual expenditures. The
overall credit quality of the state is further demonstrated by its debt ratings.
In 1996, Minnesota was upgraded to an Aaa rating from Moody's Investors Service,
Inc. Standard & Poor's Ratings Group rates the state AA+.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, the Fund will restrict
the purchase of portfolio securities to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire publicly or
nonpublicly issued Minnesota municipal securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, limitations, or its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under federal securities law,
except for certain restricted securities which meet the criteria for liquidity
established by the Trustees.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry, or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items (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 Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center--Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. Mcgonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board. As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the
Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Cash Series Shares of Minnesota Municipal Cash Trust: Norwest
Investment Services, Inc., Minneapolis, Minnesota, owned approximately
75,225,768 shares (31.95%); FBS Investment Services, Inc., Minneapolis,
Minnesota, owned approximately 30,076,578 shares (12.77%); Piper Jaffray, Inc.,
Minneapolis, Minnesota, owned approximately 26,655,429 shares (11.32%); MJK
Clearing Omnibus Account, Minneapolis, Minnesota, owned approximately 20,262,011
shares (8.61%); Regional Operations Group, Minneapolis, Minnesota, owned
approximately 18,923,617 shares (8.04%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of Minnesota Municipal Cash Trust: VAR &
Company, Saint Paul, Minnesota, owned approximately 136,557,216 shares (59.13%);
Resource Bank & Trust Company, Minneapolis, Minnesota, owned approximately
39,914,703 shares (17.28%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $1,795,783, $1,616,197, and
$1,357,870, respectively, of which $1,181,776, $1,058,480, and $906,031,
respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and
dealers to handle the purchase and sale of portfolio instruments, the adviser
looks for prompt execution of the order at a favorable price. In working with
dealers, the adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines established
by the Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund or
to the adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the adviser or its
affiliates in advising the Fund and other accounts. To the extent that receipt
of these services may supplant services for which the adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. The adviser
and its affiliates exercise reasonable business judgment in selecting brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided. During the fiscal years ended October 31, 1997, 1996, and 1995, the
Fund paid no brokerage commissions. Although investment decisions for the Fund
are made independently from those of the other accounts managed by the adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the adviser
are prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. In other cases, however, it is believed
that coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $338,975, $305,489,
and $256,977, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses. By
adopting the Plan, the Trustees expect that the Fund will be able to achieve a
more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, payments in the amount of $1,108,546
were made pursuant to the Plan for Cash Series Shares, $554,461 of which was
paid to financial institutions. In addition, for the fiscal year ended October
31, 1997, the Fund earned shareholder service fees in the amount of $554,461,
and $567,904, for Cash Series Shares and Institutional Shares, respectively, of
which $554,461, and $0, respectively, was paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true. The
Fund's use of the amortized cost method of valuing portfolio instruments depends
on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated
by the Securities and Exchange Commission under the Investment Company Act of
1940. Under the Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value. REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. For the seven-day period ended October 31, 1997, the yields for Cash
Series Shares and Institutional Shares were 3.01% and 3.51%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result. For the seven-day period ended October
31, 1997, the effective yields for Cash Series Shares and Institutional Shares
were 3.05% and 3.57%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent
yield of the Fund is calculated similarly to the yield but is adjusted to
reflect the taxable yield that the Fund would have had to earn to equal its
actual yield, assuming 48.10% tax rate (the maximum effective federal rate for
individuals) and assuming that the income is 100% tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yields for
Cash Series Shares and Institutional Shares were 5.80% and 6.76%, respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MINNESOTA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 36.50% 39.50% 44.50% 48.10%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.95% 2.36% 2.48% 2.70% 2.89%
2.00% 2.60% 3.15% 3.31% 3.60% 3.85%
2.50% 3.25% 3.94% 4.13% 4.50% 4.82%
3.00% 3.90% 4.72% 4.96% 5.41% 5.78%
3.50% 4.55% 5.51% 5.79% 6.31% 6.74%
4.00% 5.19% 6.30% 6.61% 7.21% 7.71%
4.50% 5.84% 7.09% 7.44% 8.11% 8.67%
5.00% 6.49% 7.87% 8.26% 9.01% 9.63%
5.50% 7.14% 8.66% 9.09% 9.91% 10.60%
6.00% 7.79% 9.45% 9.92% 10.81% 11.56%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions. For the one-year,
five-year, and period from January 7, 1991, (date of initial public investment)
to October 31, 1997, the average annual total returns were 2.97%, 2.71%, and
2.91%, respectively, for Cash Series Shares. For the one-year, five-year, and
period from September 10, 1990, (date of initial public investment) to October
31, 1997, the average annual total returns were 3.48%, 3.16%, and 3.47%,
respectively, for Institutional Shares. PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the money market sector, Federated Investors gained
prominence in the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered the use
of the amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money market
fund. As of December 31, 1996, Federated Investors managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime, and 21 municipal with assets approximating $28.0 billion, $12.8 billion,
and $9.5 billion, respectively. J. Thomas Madden, Executive Vice President,
oversees Federated Investors' equity and high-yield corporate bond management
while William D. Dawson, Executive Vice President, oversees Federated Investors'
domestic fixed income management. Henry A. Frantzen, Executive Vice President,
oversees the management of Federated Investors' international and global
portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
NEW JERSEY MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of New Jersey Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term New Jersey municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of New Jersey, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and New Jersey state income tax imposed upon
non-corporate taxpayers consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Institutional Shares 2 General
Information 3 Investment Information 3 Investment Objective 3 Investment
Policies 3 New Jersey Municipal Securities 5 Investment Risks 5 Investment
Limitations 5 Fund Information 6 Management of the Fund 6 Distribution of
Institutional Shares 6 Administration of the Fund 7 Net Asset Value 7 How to
Purchase Shares 7 Purchasing Shares by Wire 7 Purchasing Shares by Check 8 How
to Redeem Shares 8 Redeeming Shares by Telephone 8 Redeeming Shares by Mail 8
Account and Share Information 8 Dividends 8 Capital Gains 8 Confirmations and
Account Statements 9 Accounts with Low Balances 9 Voting Rights 9 Tax
Information 9 Federal Income Tax 9 State and Local Taxes 9 Other Classes of
Shares 10 Performance Information 10 Financial Highlights--Institutional
Service Shares 11 Financial Statements 12 Report of Independent Public
Accountants 22
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or None
redemption proceeds, as applicable)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.29%
12b-1 Fee None
Total Other Expenses 0.26%
Shareholder Services Fee (after waiver)(2) 0.05%
Total Operating Expenses(3) 0.55%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.86% absent the voluntary
waivers of portions of the management fee and shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $6
3 Years $18
5 Years $31
10 Years $69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
1997 1996 1995 1994 1993** 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.18% 3.17% 3.46% 2.26% 2.22% 2.96% 3.87%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.55% 0.54% 0.46% 0.45% 0.27%*
Net investment income 3.13% 3.13% 3.41% 2.22% 2.19% 2.86% 4.19%*
Expense waiver/reimbursement(c) 0.31% 0.37% 0.41% 0.39% 0.45% 0.51% 0.67%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $112,407 $115,722 $86,944 $62,984$66,346 $57,657 $39,423
</TABLE>
* Computed on an annualized basis.
** Prior to October 6, 1993, the fund provided three classes of shares.
(a) Reflects operations for the period from December 13,1990 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for financial institutions
acting in an agency or fiduciary capacity as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term New
Jersey municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-New Jersey taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 over a 90-day
period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and New Jersey state income tax imposed upon non-corporate
taxpayers consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and New Jersey state income tax
imposed upon non-corporate taxpayers. (Federal regular income tax does not
include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of New
Jersey and its political subdivisions and financing authorities, and obligations
of other states, territories, and possessions of the United States, including
the District of Columbia, and any political subdivision or financing authority
of any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and New Jersey state income tax
imposed upon non-corporate taxpayers ("New Jersey Municipal Securities").
Examples of New Jersey Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in New Jersey Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying New
Jersey Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. As a matter of fundamental investment policy, which cannot be
changed without shareholder approval, the Fund will not invest more than 10% of
its net assets in restricted securities except for certain restricted securities
that meet the criteria for liquidity established by the Trustees. As a matter of
non-fundamental investment policy, the Fund will limit investments in illiquid
securities, including illiquid restricted securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain New Jersey
Municipal Securities is subject to the federal alternative minimum tax.
NEW JERSEY MUNICIPAL SECURITIES
New Jersey Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New Jersey Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of New Jersey Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on New Jersey Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of New Jersey Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of New Jersey
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in New Jersey Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
New Jersey Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of New Jersey Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these considerations, the Fund's
concentration in New Jersey Municipal Securities may entail a greater level of
risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. These investment limitations cannot be
changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New Jersey
Municipal Cash Trust--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: New Jersey Municipal Cash Trust--Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Fleet Securities Corp., Rochester, New York, owned
35.38% of the voting securities of the Institutional Shares of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than New
Jersey. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
NEW JERSEY TAXES
Under existing New Jersey laws, distributions made by the Fund will not be
subject to New Jersey income taxes to the extent that such distributions qualify
as exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest or gain from obligations issued by or on behalf of the State of New
Jersey or any county, municipality, school or other district, agency, authority,
commission, instrumentality, public corporation, body corporate and politic or
political subdivision of New Jersey; or (ii) interest or gain from obligations
(such as obligations of the United States) that are statutorily free from New
Jersey taxation under federal or New Jersey state laws. Conversely, to the
extent that distributions by the Fund are attributable to other types of
obligations, such distributions will be subject to New Jersey income taxes.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey Corporation Business Tax or New Jersey Corporation
Income Tax.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
financial institutions acting in an agency capacity and are subject to a minimum
initial investment of $25,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Service Shares are distributed under a 12b-1 Plan adopted by the
Fund and also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
1997 1996 1995 1994 1993** 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.08% 3.07% 3.36% 2.16% 2.12% 2.86% 3.82%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.65% 0.65% 0.65% 0.56% 0.55% 0.35%*
Net investment income 3.08% 3.03% 3.28% 2.19% 2.08% 2.69% 4.11%*
Expense waiver/reimbursement(c) 0.31% 0.37% 0.41% 0.41% 0.45% 0.51% 0.69%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $54,538 $28,807 $29,817 $36,704 $21,005 $26,844 $17,709
</TABLE>
* Computed on an annualized basis.
** Prior to October 6, 1993, the fund provided three classes of shares.
(a) Reflects operations for the period from December 13,1990 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
NEW JERSEY MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.2%
NEW JERSEY--90.0%
$ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs $ 700,000
(Marine Midland Bank N.A., Buffalo, NY LOC)
1,255,000 Atlantic Highlands, NJ, 4.125% BANs, 12/29/1997 1,255,816
2,400,000 Berlin Township, NJ, 4.125% BANs, 6/25/1998 2,403,352
3,285,000 Burlington, NJ, (Series 1997), 4.25% BANs, 10/20/1998 3,294,143
1,710,000 Camden County, NJ Improvement Authority, (Series 1995) Weekly 1,710,000
VRDNs (Jewish Federation of Southern Jersey, Inc.)/(National
Westminster Bank, PLC, London LOC)
4,900,000 (b)Camden County, NJ Improvement Authority, (Series 1996) 4,900,000
Weekly VRDNs (Parkview Redevelopment Housing
Project)/(General Electric Capital Corp. LOC)
4,780,000 (b)Clipper New Jersey Tax-Exempt Trust, (Series 1996-2) 4,780,000
Weekly VRDNs (New Jersey Housing & Mortgage Financing
Authority)/(MBIA INS)/(State Street Bank and Trust Co. LIQ)
1,099,900 Colts Neck Township, NJ, (Series 1997A), 4.00% BANs, 1,100,914
2/27/1998
1,950,000 Cumberland, NJ Regional School District Board of Education, 1,950,626
4.375% BANs, 12/15/1997
1,078,010 Franklin Township, NJ, 4.25% BANs, 8/19/1998 1,080,897
1,256,000 Green Township, NJ, 4.00% BANs, 1/22/1998 1,256,406
1,581,598 Haddonfield, NJ, 4.45% BANs, 6/5/1998 1,585,915
1,275,000 Hammonton, NJ, 4.00% BANs, 11/26/1997 1,275,252
1,000,000 Harrison, NJ, 4.25% BANs, 5/28/1998 1,001,630
3,844,018 High Bridge Borough, NJ, 4.375% BANs, 9/4/1998 3,855,657
3,884,515 Jefferson Township, NJ, (Series 1997A), 4.00% BANs, 2/20/1998 3,887,929
2,000,000 Longport, NJ, 4.15% BANs, 1/28/1998 2,001,164
1,800,000 Manchester Township, NJ, (Series 1996C), 4.25% BANs, 1,800,593
11/26/1997
2,185,593 Maple Shade Township, NJ, 4.25% BANs, 5/8/1998 2,189,431
1,000,000 Mercer County, NJ Improvement Authority Weekly VRDNs
(Mercer 1,000,000
County, NJ Pooled Governmental Loan Program)/(Credit Suisse
First Boston LOC)
1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold 1,500,000
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
2,220,000 Monroe Township, NJ, 4.375% BANs, 7/30/1998 2,225,950
2,637,087 Monroe Township, NJ, 4.50% BANs, 1/15/1998 2,638,916
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
NEW JERSEY--CONTINUED
$ 1,200,000 New Brunswick, NJ, 3.875% BANs, 12/23/1997 $ 1,200,287
1,100,000 New Jersey EDA Weekly VRDNs (Center-For-Aging - Applewood 1,100,000
Estates)/(Banque Paribas, Paris LOC)
2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of 2,500,000
Scotland, Edinburgh LOC)
5,468,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/(First 5,468,000
National Bank of Maryland, Baltimore LOC)
4,173,000 New Jersey EDA Weekly VRDNs (Molins Machines)/(Nationsbank, 4,173,000
N.A., Charlotte LOC)
1,075,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chase Manhattan 1,075,000
Bank N.A., New York LOC)
1,380,000 New Jersey EDA, (1994 Series A), 4.30% TOBs (A.F.L. Quality, 1,380,000
Inc.)/(Fleet Bank. N.A. LOC), Optional Tender 6/24/1998
1,040,000 New Jersey EDA, (1994 Series B), 4.30% TOBs (Two Univac, 1,040,000
L.L.C.)/(Fleet Bank. N.A. LOC), Optional Tender 6/24/1998
4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/(First 4,100,000
Union National Bank, Charlotte, NC LOC)
4,000,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield 4,000,000
Associates)/(Bank of Tokyo- Mitsubishi Ltd. LOC)
300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban 300,000
Renewal)/(National Westminster Bank, PLC, London LOC)
1,950,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington 1,950,000
Corners Associates)/ (First Union National Bank, North LOC)
1,000,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin 1,000,000
Corp.)/(Banque Nationale de Paris LOC)
1,925,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem 1,925,000
Realty)/(Banque Nationale de Paris LOC)
1,401,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra 1,401,000
Corporation Project)/(Chase Manhattan Bank N.A., New York
LOC)
2,580,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International 2,580,000
Vitamin Corporation Project)/ (National Westminster Bank,
PLC, London LOC)
1,100,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel 1,100,000
Co., Inc.)/(First Union National Bank, North LOC)
4,845,000 New Jersey EDA, (Series 1996) Weekly VRDNs (R. Realty 4,845,000
Company)/(First Union National Bank, Charlotte, NC LOC)
1,700,000 New Jersey EDA, (Series 1997) Weekly VRDNs (UJA Federation of 1,700,000
Bergan County and North Hudson, Inc.)/(Bank of New York, New
York LOC)
2,585,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Wood Hollow 2,585,000
Associates, L.L.C.)/(Corestates Bank N.A., Philadelphia, PA
LOC)
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
NEW JERSEY--CONTINUED
$ 1,450,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue, $ 1,450,000
LLC & Wearbest Sil-Tex, Ltd.)/(Bank of New York, New York
LOC)
590,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue, 590,000
LLC & Wearbest Sil-Tex, Ltd.)/(Bank of New York, New York
LOC)
950,000 New Jersey EDA, (Series B) Weekly VRDNs (Greater Trenton 950,000
CMHC, Inc.)/(Corestates N.J. National Bank, Ewing Township
LOC)
900,000 New Jersey EDA, (Series D-1) Weekly VRDNs (The Hibbert 900,000
Company)/(Corestates N.J. National Bank, Ewing Township LOC)
680,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, 680,000
Inc.)/(Banque Nationale de Paris LOC)
2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs 2,815,000
(Atlantic States Cast Iron Pipe Co.)/(Amsouth Bank N.A.,
Birmingham LOC)
4,800,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983) 4,800,000
Weekly VRDNs (Trailer Marine Transport Corp.)/(Chase
Manhattan Bank N.A., New York LOC)
11,280,000 (b)New Jersey Housing & Mortgage Financing Authority, CDC 11,280,000
Municipal Products Class A Certificates (Series 1996B) Weekly
VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ)
1,500,000 (b)New Jersey State Transportation Trust Fund Agency, Trust 1,500,000
Receipts (Series 1996-1) Weekly VRDNs (MBIA INS)/(Bank of New
York, New York LIQ)
4,000,000 (b)New Jersey State, (CDC Series 1997L) Weekly VRDNs (CDC 4,000,000
Municipal Products, Inc. LIQ)
4,100,000 New Jersey State, (Series Fiscal 1998A), 3.80% CP (Bank of 4,100,000
Nova Scotia, Toronto and Commerzbank AG, Frankfurt LIQs),
Mandatory Tender 1/20/1998
2,203,300 Pine Hill Borough, NJ, (Series B), 3.96% BANs, 8/7/1998 2,204,263
1,018,953 Point Pleasant, NJ, 4.375% BANs, 8/6/1998 1,021,768
1,021,244 Point Pleasant, NJ, 4.375% BANs, 9/17/1998 1,024,475
10,000,000 Port Authority of New York and New Jersey, (Series 1991-4) 10,000,000
Weekly VRDNs
1,500,000 Stafford Township, NJ, 4.375% BANs, 5/15/1998 1,502,114
4,322,655 Washington Borough, NJ, 4.00% BANs, 12/12/1997 4,324,057
1,400,000 Washington Township, NJ, 4.10% BANs, 8/6/1998 1,402,042
833,132 Washington Township, NJ, 4.25% BANs, 12/19/1997 833,603
TOTAL 150,194,200
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--9.2%
$ 11,000,000 (b)ABN AMRO Chicago Corp. 1997A LeaseTOPS Trust Weekly VRDNs $ 10,314,009
(Commonwealth of Puerto Rico Municipal Revenues Collection
Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/ (State Street
Bank and Trust Co. LOC)
5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 5,000,000
Tender 1/14/1998
TOTAL 15,314,009
TOTAL INVESTMENTS (AT AMORTIZED $ 165,508,209
COST)(C)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 30.0% of the
portfolio as calculated based upon total portfolio market value.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
94.84% 5.16%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$37,460,000 which represents 22.4% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($166,945,139) at October 31, 1997.
The following acronyms are used throughout this portfolio: BANs --Bond
Anticipation Notes CP --Commercial Paper EDA --Economic Development Authority
INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal
Bond Investors Assurance PCFA --Pollution Control Finance Authority PLC --Public
Limited Company TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
NEW JERSEY MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 165,508,209
Cash 340,865
Income receivable 1,495,539
Total assets 167,344,613
LIABILITIES:
Payable for shares redeemed $ 25,512
Income distribution payable 341,797
Accrued expenses 32,165
Total liabilities 399,474
Net Assets for 166,945,139 shares outstanding $ 166,945,139
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$112,406,741 / 112,406,741 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$54,538,398 / 54,538,398 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
NEW JERSEY MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,185,900
EXPENSES:
Investment advisory fee $ 669,639
Administrative personnel and services fee 155,000
Custodian fees 9,282
Transfer and dividend disbursing agent fees and expenses 47,895
Directors'/Trustees' fees 2,363
Auditing fees 13,044
Legal fees 9,341
Portfolio accounting fees 59,942
Distribution services fee--Institutional Service Shares 38,943
Shareholder services fee--Institutional Shares 321,195
Shareholder services fee--Institutional Service Shares 97,357
Share registration costs 28,331
Printing and postage 14,027
Insurance premiums 3,704
Taxes 2,680
Miscellaneous 5,324
Total expenses 1,478,067
Waivers --
Waiver of investment advisory fee $ (176,158)
Waiver of distribution services fee--Institutional (38,943)
Service Shares
Waiver of shareholder services fee--Institutional Shares (256,956)
Waiver of shareholder services fee--Institutional (38,943)
Service Shares
Total waivers (511,000)
Net expenses 967,067
Net investment income $ 5,218,833
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 5,218,833 $ 3,903,742
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (4,020,737) (3,146,674)
Institutional Service Shares (1,198,096) (757,068)
Change in net assets resulting from distributions to (5,218,833) (3,903,742)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 561,976,671 416,887,554
Net asset value of shares issued to shareholders in payment of 1,135,725 630,451
distributions declared
Cost of shares redeemed (540,696,148) (389,750,630)
Change in net assets resulting from share transactions 22,416,248 27,767,375
Change in net assets 22,416,248 27,767,375
NET ASSETS:
Beginning of period 144,528,891 116,761,516
End of period $ 166,945,139 $ 144,528,891
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
NEW JERSEY MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New Jersey Municipal Cash Trust
(the "Fund"), a non-diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is current
income exempt from federal regular income tax and the regular personal income
taxes imposed by the State of New Jersey consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees. The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997
is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Camden County, NJ Improvement 7/10/1996 $ 4,900,000
Authority
Clipper New Jersey Tax-Exempt Trust 5/1/1996 4,780,000
New Jersey Housing & Mortgage 4/22/1997 - 5/9/1997 11,280,000
Financing Authority
New Jersey State Transportation 8/22/1997 1,500,000
Trust Fund Agency
New Jersey State, (CDC Series 1997L 5/22/1997 4,000,000
ABN AMRO Chicago Corp 9/12/1997 - 11,000,000
10/29/1997
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $166,945,139.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
Shares sold 385,242,860 334,848,832
Shares issued to shareholders in payment of distributions 321,415 218,331
declared
Shares redeemed (388,879,537) (306,289,398)
Net change resulting from Institutional Share transactions (3,315,262) 28,777,765
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
<S> <C> <C>
Shares sold 176,733,811 82,038,722
Shares issued to shareholders in payment of distributions declared 814,310 412,120
Shares redeemed (151,816,611) (83,461,232)
Net change resulting from Institutional Service Share transactions 25,731,510 (1,010,390)
Net change resulting from share transactions 22,416,248 27,767,375
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.10% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. FSC may voluntarily
choose to waive any portion of its fee. FSC can modify or terminate this
voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $330,405,000 and $307,795,000,
respectively. GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 57.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 10.5% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (NEW
JERSEY MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 11 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
NOTES
NOTES
[Graphic]
New Jersey Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment
Company
NEW JERSEY MUNICIPAL CASH TRUST INSTITUTIONAL 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
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
1-800-245-7400
www.federatedinvestors.com
Cusip 314229600
0100802A-IS (12/97)
[Graphic]
NEW JERSEY MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of New Jersey Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term New Jersey municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of New Jersey, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and New Jersey state income tax
imposed upon non-corporate taxpayers consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Institutional Service Shares 2
General Information 3 Investment Information 3 Investment Objective 3
Investment Policies 3 New Jersey Municipal Securities 5 Investment Risks 5
Investment Limitations 6 Fund Information 6 Management of the Fund 6
Distribution of Institutional Service Shares 6 Administration of the Fund 7 Net
Asset Value 7 How to Purchase Shares 7 Purchasing Shares Through a Financial
Institution 8 Purchasing Shares by Wire 8 Purchasing Shares by Check 8 Special
Purchase Features 8 How to Redeem Shares 8 Redeeming Shares Through a Financial
Institution 8 Redeeming Shares by Telephone 8 Redeeming Shares by Mail 9
Special Redemption Features 9 Account and Share Information 9 Dividends 9
Capital Gains 9 Confirmations and Account Statements 10 Accounts with Low
Balances 10 Voting Rights 10 Tax Information 10 Federal Income Tax 10 State and
Local Taxes 10 Other Classes of Shares 11 Performance Information 11 Financial
Highlights--Institutional Shares 12 Financial Statements 13 Report of
Independent Public Accountants 23
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption proceeds, as applicable)
None Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None <CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.29%
12b-1 Fee(2) 0.00%
Total Other Expenses 0.36%
Shareholder Services Fee (after waiver)(3) 0.15%
Total Operating Expenses(4) 0.65%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%
(2) The 12b-1 Fee has been reduced to reflect the voluntary waiver of the 12b-1
fee. The distributor can terminate this voluntary waiver at any time at its sole
discretion. The maximum 12b-1 fee is 0.10%.
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(4) The total operating expenses would have been 0.96% absent the voluntary
waivers of portions of the management fee and shareholder services fee and the
voluntary waiver of the 12b-1 fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $7
3 Years $21
5 Years $36
10 Years $81
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
1997 1996 1995 1994 1993** 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.08% 3.07% 3.36% 2.16% 2.12% 2.86% 3.82%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.65% 0.65% 0.65% 0.56% 0.55% 0.35%*
Net investment income 3.08% 3.03% 3.28% 2.19% 2.08% 2.69% 4.11%*
Expense waiver/reimbursement(c) 0.31% 0.37% 0.41% 0.41% 0.45% 0.51% 0.69%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $54,538 $28,807 $29,817 $36,704 $21,005 $26,844 $17,709
</TABLE>
* Computed on an annualized basis.
** Prior to October 6, 1993, the fund provided three classes of shares.
(a) Reflects operations for the period from December 13,1990 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for financial
institutions acting in an agency capacity as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term New
Jersey municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-New Jersey taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 over a 90-day
period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and New Jersey state income tax imposed upon non-corporate
taxpayers consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and New Jersey state income tax
imposed upon non-corporate taxpayers. (Federal regular income tax does not
include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of New
Jersey and its political subdivisions and financing authorities, and obligations
of other states, territories, and possessions of the United States, including
the District of Columbia, and any political subdivision or financing authority
of any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and New Jersey state income tax
imposed upon non-corporate taxpayers ("New Jersey Municipal Securities").
Examples of New Jersey Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in New Jersey Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying New
Jersey Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. As a matter of fundamental investment policy, which cannot be
changed without shareholder approval, the Fund will not invest more than 10% of
its net assets in restricted securities except for certain restricted securities
that meet the criteria for liquidity established by the Trustees. As a matter of
non-fundamental investment policy, the Fund will limit investments in illiquid
securities, including illiquid restricted securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain New Jersey
Municipal Securities is subject to the federal alternative minimum tax.
NEW JERSEY MUNICIPAL SECURITIES
New Jersey Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New Jersey Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of New Jersey Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on New Jersey Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of New Jersey Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of New Jersey
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in New Jersey Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
New Jersey Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of New Jersey Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these considerations, the Fund's
concentration in New Jersey Municipal Securities may entail a greater level of
risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. These investment limitations cannot be
changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.10% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$25,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New Jersey
Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: New Jersey Municipal Cash Trust--Institutional Service Shares. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Services Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution or to
the shareholder by check or by wire. The financial institution is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions. Customary fees and commissions may be charged by the
financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Fleet Securities Corp., Rochester, New York, owned
35.38% of the voting securities of the Institutional Shares of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than New
Jersey. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
NEW JERSEY TAXES
Under existing New Jersey laws, distributions made by the Fund will not be
subject to New Jersey income taxes to the extent that such distributions qualify
as exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest or gain from obligations issued by or on behalf of the State of New
Jersey or any county, municipality, school or other district agency, authority,
commission, instrumentality, public corporation, body corporate and politic or
political subdivision of New Jersey; or (ii) interest or gain from obligations
(such as obligations of the United States) that are statutorily free from New
Jersey taxation under federal or New Jersey state laws. Conversely, to the
extent that distributions by the Fund are attributable to other types of
obligations, such distributions will be subject to New Jersey income taxes.
Distributions received by a corporate shareholder from the Fund will not be
exempt from New Jersey Corporation Business Tax or New Jersey Corporation
Income Tax.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary capacity and are subject to a minimum initial
investment of $25,000, over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
1997 1996 1995 1994 1993** 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.18% 3.17% 3.46% 2.26% 2.22% 2.96% 3.87%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.55% 0.54% 0.46% 0.45% 0.27%*
Net investment income 3.13% 3.13% 3.41% 2.22% 2.19% 2.86% 4.19%*
Expense waiver/reimbursement(c) 0.31% 0.37% 0.41% 0.39% 0.45% 0.51% 0.67%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $112,407 $115,722 $86,944 $62,984$66,346 $57,657 $39,423
</TABLE>
* Computed on an annualized basis.
** Prior to October 6, 1993, the fund provided three classes of shares.
(a) Reflects operations for the period from December 13,1990 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
NEW JERSEY MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.2%
NEW JERSEY--90.0%
$ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs $ 700,000
(Marine Midland Bank N.A., Buffalo, NY LOC)
1,255,000 Atlantic Highlands, NJ, 4.125% BANs, 12/29/1997 1,255,816
2,400,000 Berlin Township, NJ, 4.125% BANs, 6/25/1998 2,403,352
3,285,000 Burlington, NJ, (Series 1997), 4.25% BANs, 10/20/1998 3,294,143
1,710,000 Camden County, NJ Improvement Authority, (Series 1995) Weekly 1,710,000
VRDNs (Jewish Federation of Southern Jersey, Inc.)/(National
Westminster Bank, PLC, London LOC)
4,900,000 (b)Camden County, NJ Improvement Authority, (Series 1996) 4,900,000
Weekly VRDNs (Parkview Redevelopment Housing
Project)/(General Electric Capital Corp. LOC)
4,780,000 (b)Clipper New Jersey Tax-Exempt Trust, (Series 1996-2) 4,780,000
Weekly VRDNs (New Jersey Housing & Mortgage Financing
Authority)/(MBIA INS)/(State Street Bank and Trust Co. LIQ)
1,099,900 Colts Neck Township, NJ, (Series 1997A), 4.00% BANs, 1,100,914
2/27/1998
1,950,000 Cumberland, NJ Regional School District Board of Education, 1,950,626
4.375% BANs, 12/15/1997
1,078,010 Franklin Township, NJ, 4.25% BANs, 8/19/1998 1,080,897
1,256,000 Green Township, NJ, 4.00% BANs, 1/22/1998 1,256,406
1,581,598 Haddonfield, NJ, 4.45% BANs, 6/5/1998 1,585,915
1,275,000 Hammonton, NJ, 4.00% BANs, 11/26/1997 1,275,252
1,000,000 Harrison, NJ, 4.25% BANs, 5/28/1998 1,001,630
3,844,018 High Bridge Borough, NJ, 4.375% BANs, 9/4/1998 3,855,657
3,884,515 Jefferson Township, NJ, (Series 1997A), 4.00% BANs, 2/20/1998 3,887,929
2,000,000 Longport, NJ, 4.15% BANs, 1/28/1998 2,001,164
1,800,000 Manchester Township, NJ, (Series 1996C), 4.25% BANs, 1,800,593
11/26/1997
2,185,593 Maple Shade Township, NJ, 4.25% BANs, 5/8/1998 2,189,431
1,000,000 Mercer County, NJ Improvement Authority Weekly VRDNs
(Mercer 1,000,000
County, NJ Pooled Governmental Loan Program)/(Credit Suisse
First Boston LOC)
1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold 1,500,000
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
2,220,000 Monroe Township, NJ, 4.375% BANs, 7/30/1998 2,225,950
2,637,087 Monroe Township, NJ, 4.50% BANs, 1/15/1998 2,638,916
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
NEW JERSEY--CONTINUED
$ 1,200,000 New Brunswick, NJ, 3.875% BANs, 12/23/1997 $ 1,200,287
1,100,000 New Jersey EDA Weekly VRDNs (Center-For-Aging - Applewood 1,100,000
Estates)/(Banque Paribas, Paris LOC)
2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of 2,500,000
Scotland, Edinburgh LOC)
5,468,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/(First 5,468,000
National Bank of Maryland, Baltimore LOC)
4,173,000 New Jersey EDA Weekly VRDNs (Molins Machines)/(Nationsbank, 4,173,000
N.A., Charlotte LOC)
1,075,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chase Manhattan 1,075,000
Bank N.A., New York LOC)
1,380,000 New Jersey EDA, (1994 Series A), 4.30% TOBs (A.F.L. Quality, 1,380,000
Inc.)/(Fleet Bank. N.A. LOC), Optional Tender 6/24/1998
1,040,000 New Jersey EDA, (1994 Series B), 4.30% TOBs (Two Univac, 1,040,000
L.L.C.)/(Fleet Bank. N.A. LOC), Optional Tender 6/24/1998
4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/(First 4,100,000
Union National Bank, Charlotte, NC LOC)
4,000,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield 4,000,000
Associates)/(Bank of Tokyo- Mitsubishi Ltd. LOC)
300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban 300,000
Renewal)/(National Westminster Bank, PLC, London LOC)
1,950,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington 1,950,000
Corners Associates)/ (First Union National Bank, North LOC)
1,000,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin 1,000,000
Corp.)/(Banque Nationale de Paris LOC)
1,925,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem 1,925,000
Realty)/(Banque Nationale de Paris LOC)
1,401,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra 1,401,000
Corporation Project)/(Chase Manhattan Bank N.A., New York
LOC)
2,580,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International 2,580,000
Vitamin Corporation Project)/ (National Westminster Bank,
PLC, London LOC)
1,100,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel 1,100,000
Co., Inc.)/(First Union National Bank, North LOC)
4,845,000 New Jersey EDA, (Series 1996) Weekly VRDNs (R. Realty 4,845,000
Company)/(First Union National Bank, Charlotte, NC LOC)
1,700,000 New Jersey EDA, (Series 1997) Weekly VRDNs (UJA Federation of 1,700,000
Bergan County and North Hudson, Inc.)/(Bank of New York, New
York LOC)
2,585,000 New Jersey EDA, (Series 1997) Weekly VRDNs (Wood Hollow 2,585,000
Associates, L.L.C.)/(Corestates Bank N.A., Philadelphia, PA
LOC)
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
NEW JERSEY--CONTINUED
$ 1,450,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue, $ 1,450,000
LLC & Wearbest Sil-Tex, Ltd.)/(Bank of New York, New York
LOC)
590,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue, 590,000
LLC & Wearbest Sil-Tex, Ltd.)/(Bank of New York, New York
LOC)
950,000 New Jersey EDA, (Series B) Weekly VRDNs (Greater Trenton 950,000
CMHC, Inc.)/(Corestates N.J. National Bank, Ewing Township
LOC)
900,000 New Jersey EDA, (Series D-1) Weekly VRDNs (The Hibbert 900,000
Company)/(Corestates N.J. National Bank, Ewing Township LOC)
680,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, 680,000
Inc.)/(Banque Nationale de Paris LOC)
2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs 2,815,000
(Atlantic States Cast Iron Pipe Co.)/(Amsouth Bank N.A.,
Birmingham LOC)
4,800,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983) 4,800,000
Weekly VRDNs (Trailer Marine Transport Corp.)/(Chase
Manhattan Bank N.A., New York LOC)
11,280,000 (b)New Jersey Housing & Mortgage Financing Authority, CDC 11,280,000
Municipal Products Class A Certificates (Series 1996B) Weekly
VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ)
1,500,000 (b)New Jersey State Transportation Trust Fund Agency, Trust 1,500,000
Receipts (Series 1996-1) Weekly VRDNs (MBIA INS)/(Bank of New
York, New York LIQ)
4,000,000 (b)New Jersey State, (CDC Series 1997L) Weekly VRDNs (CDC 4,000,000
Municipal Products, Inc. LIQ)
4,100,000 New Jersey State, (Series Fiscal 1998A), 3.80% CP (Bank of 4,100,000
Nova Scotia, Toronto and Commerzbank AG, Frankfurt LIQs),
Mandatory Tender 1/20/1998
2,203,300 Pine Hill Borough, NJ, (Series B), 3.96% BANs, 8/7/1998 2,204,263
1,018,953 Point Pleasant, NJ, 4.375% BANs, 8/6/1998 1,021,768
1,021,244 Point Pleasant, NJ, 4.375% BANs, 9/17/1998 1,024,475
10,000,000 Port Authority of New York and New Jersey, (Series 1991-4) 10,000,000
Weekly VRDNs
1,500,000 Stafford Township, NJ, 4.375% BANs, 5/15/1998 1,502,114
4,322,655 Washington Borough, NJ, 4.00% BANs, 12/12/1997 4,324,057
1,400,000 Washington Township, NJ, 4.10% BANs, 8/6/1998 1,402,042
833,132 Washington Township, NJ, 4.25% BANs, 12/19/1997 833,603
TOTAL 150,194,200
</TABLE>
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--9.2%
$ 11,000,000 (b)ABN AMRO Chicago Corp. 1997A LeaseTOPS Trust Weekly VRDNs $ 10,314,009
(Commonwealth of Puerto Rico Municipal Revenues Collection
Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/ (State Street
Bank and Trust Co. LOC)
5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 5,000,000
Tender 1/14/1998
TOTAL 15,314,009
TOTAL INVESTMENTS (AT AMORTIZED $ 165,508,209
COST)(C)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 30.0% of the
portfolio as calculated based upon total portfolio market value.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., or F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
94.84% 5.16%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$37,460,000 which represents 22.4% of net assets.
( c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($166,945,139) at October 31, 1997.
The following acronyms are used throughout this portfolio: BANs --Bond
Anticipation Notes CP --Commercial Paper EDA --Economic Development Authority
INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal
Bond Investors Assurance PCFA --Pollution Control Finance Authority PLC --Public
Limited Company TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
NEW JERSEY MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 165,508,209
Cash 340,865
Income receivable 1,495,539
Total assets 167,344,613
LIABILITIES:
Payable for shares redeemed $ 25,512
Income distribution payable 341,797
Accrued expenses 32,165
Total liabilities 399,474
Net Assets for 166,945,139 shares outstanding $ 166,945,139
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$112,406,741 / 112,406,741 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$54,538,398 / 54,538,398 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
NEW JERSEY MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 6,185,900
EXPENSES:
Investment advisory fee $ 669,639
Administrative personnel and services fee 155,000
Custodian fees 9,282
Transfer and dividend disbursing agent fees and expenses 47,895
Directors'/Trustees' fees 2,363
Auditing fees 13,044
Legal fees 9,341
Portfolio accounting fees 59,942
Distribution services fee--Institutional Service Shares 38,943
Shareholder services fee--Institutional Shares 321,195
Shareholder services fee--Institutional Service Shares 97,357
Share registration costs 28,331
Printing and postage 14,027
Insurance premiums 3,704
Taxes 2,680
Miscellaneous 5,324
Total expenses 1,478,067
Waivers --
Waiver of investment advisory fee $ (176,158)
Waiver of distribution services fee--Institutional (38,943)
Service Shares
Waiver of shareholder services fee--Institutional Shares (256,956)
Waiver of shareholder services fee--Institutional (38,943)
Service Shares
Total waivers (511,000)
Net expenses 967,067
Net investment income $ 5,218,833
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
NEW JERSEY MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 5,218,833 $ 3,903,742
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (4,020,737) (3,146,674)
Institutional Service Shares (1,198,096) (757,068)
Change in net assets resulting from distributions to (5,218,833) (3,903,742)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 561,976,671 416,887,554
Net asset value of shares issued to shareholders in payment of 1,135,725 630,451
distributions declared
Cost of shares redeemed (540,696,148) (389,750,630)
Change in net assets resulting from share transactions 22,416,248 27,767,375
Change in net assets 22,416,248 27,767,375
NET ASSETS:
Beginning of period 144,528,891 116,761,516
End of period $ 166,945,139 $ 144,528,891
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
NEW JERSEY MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New Jersey Municipal Cash Trust
(the "Fund"), a non-diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is current
income exempt from federal regular income tax and the regular personal income
taxes imposed by the State of New Jersey consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees. The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Camden County, NJ Improvement
7/10/1996 $ 4,900,000 Authority Clipper New Jersey Tax-Exempt Trust 5/1/1996
4,780,000 New Jersey Housing & Mortgage 4/22/1997 - 5/9/1997 11,280,000
Financing Authority New Jersey State Transportation 8/22/1997 1,500,000 Trust
Fund Agency New Jersey State, (CDC Series 1997L 5/22/1997 4,000,000 ABN AMRO
Chicago Corp 9/12/1997 - 11,000,000
10/29/1997
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $166,945,139.
Transactions in shares were as follows: <TABLE> <CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
Shares sold 385,242,860 334,848,832
Shares issued to shareholders in payment of distributions 321,415 218,331
declared
Shares redeemed (388,879,537) (306,289,398)
Net change resulting from Institutional Share transactions (3,315,262) 28,777,765
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
<S> <C> <C>
Shares sold 176,733,811 82,038,722
Shares issued to shareholders in payment of distributions declared 814,310 412,120
Shares redeemed (151,816,611) (83,461,232)
Net change resulting from Institutional Service Share transactions 25,731,510 (1,010,390)
Net change resulting from share transactions 22,416,248 27,767,375
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.10% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. FSC may voluntarily
choose to waive any portion of its fee. FSC can modify or terminate this
voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $330,405,000 and $307,795,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 57.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 10.5% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (NEW
JERSEY MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
NOTES
[Graphic]
New Jersey Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
NEW JERSEY MUNICIPAL CASH TRUST
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
[Graphic]
Federated Securities Corp., Distributor
1-800-245-7400
www.federatedinvestors.com
Cusip 314229709
0100802A-SS (12/97)
[Graphic]
NEW JERSEY MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectuses of
New Jersey Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
NEW JERSEY MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-245-7400
www.federatedinvestors.com
Cusip 314229709
0100802B (12/97)
[Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1
Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2
Investing in Securities of Other Investment Companies 2 NEW JERSEY INVESTMENT
RISKS 2 INVESTMENT LIMITATIONS 3 Selling Short and Buying on Margin 3 Issuing
Senior Securities and Borrowing Money 3 Pledging Assets 3 Lending Cash or
Securities 3 Investing in Commodities 3 Investing in Real Estate 3 Underwriting
4 Concentration of Investments 4 Investing in Illiquid Securities 4 Investing
for Control 4 Investing in Options 4 Regulatory Compliance 4 FEDERATED
MUNICIPAL TRUST MANAGEMENT 4 Share Ownership 8 Trustee Compensation 9 Trustee
Liability 9 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees
10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian
and Portfolio Accountant 10 Transfer Agent 11 Independent Public Accountants 11
Distribution Plan and Shareholder Services 11 DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 13
Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic
and Market Information 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 15
Institutional Clients 15 Bank Marketing 15 Broker/Dealers and Bank
Broker/Dealer Subsidiaries 15 APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
NEW JERSEY INVESTMENT RISKS
The Fund invests in obligations of New Jersey (the "State") issuers which result
in the Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a general
summary of the State's financial condition and a brief summary of the prevailing
economic conditions. This information is based on official statements relating
to securities that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The New Jersey economy is diversified with large retail trade and service
sectors and many headquarters of large U.S. corporations. Employment levels have
recovered from the losses incurred in the 1989-1992 recession. Since October
1992, total employment has increased by nearly 7%.The unemployment rate declined
from 8.6% to 5.2%, during this same period. New Jersey's wealth indicators rank
among the highest in the nation. In 1996, the State's personal per capita income
ranked third in the nation, 28.3% above the national average.
A new fiscal policy has emerged in New Jersey. In an attempt to spur economic
growth, income tax reductions totaling 30% for most individuals were phased in
over a three-year period. For fiscal years 1995-1998, appropriations were
budgeted to increase by 1%. Given lower tax revenue levels, expenditure
reductions will continue to be key to balancing the budget. This low level
growth can only be accomplished by significantly curtailing the State's fastest
growing Budget items--Medicaid and corrections. The state faces the additional
challenge of managing Federal welfare reform. In any fiscal scenario, the
State's credit picture is greatly helped by strong cash reserves. In recent
years, the State has maintained cash basis year-end balances exceeding 5% of
revenues. For fiscal year 1997, the closing balance is expected to be just under
$1.1 billion, an increase of $196 over the closing fiscal year 1996 balance.
New Jersey's debt structure was dramatically changed in 1997 when the state
issued $2.75 billion in bonds to fund its unfunded pension liability. This
transaction increased the state's debt service expense but eliminated its
unfunded pension fund contribution. This issue reduced the state's financial
flexibility by substituting a relatively flexible obligation, an actuarial
estimate, with a more rigid obligation, a debt service payment. In addition,
annual expenses could increase if the return on invested bond proceeds is less
than interest rate of the bonds. New Jersey's overall tax-supported debt ratios
are $1,500 per capita and 5% of personal income.
The overall credit quality of the State is further demonstrated by its debt
ratings. New Jersey maintains an Aa1 rating from Moody's Investors Service, Inc.
S&P rates the State AA+.
The Fund's concentration in municipal securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
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 Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated
Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund:
1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc.--1999; Liberty
U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Planters Funds; The Virtus Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Wesmark Funds; WCT
Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the New Jersey Municipal Cash Trust:
Fleet Securities Corp., Rochester, New York, owned approximately 41,697,832
shares (35.38%); United National Bank, Bridgewater, New Jersey, owned
approximately 20,033,476 shares (17.00%); Corestates Bank N.A., Philadelphia,
Pennsylvania, owned approximately 15,124,700 shares (12.83%); Tellson & Co.,
Peapack Gladstone Bank, Gladstone, New Jersey, owned approximately 14,552,598
shares (12.35%); Fiduciary Trust Co. International, for the exclusive benefit of
its customers, New York, New York, owned approximately 10,946,500 shares
(9.29%); and The Bopac Company, Valley National Bank, Clifton, New Jersey, owned
approximately 8,216,430 shares (6.97%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the New Jersey Municipal Cash
Trust: Managed Healthcare System of New Jersey, New York, New York, owned
approximately 14,119,738 shares (24.88%); Fiduciary Trust Co. International, for
the exclusive benefit of its customers, New York, New York, owned approximately
8,156,500 shares (14.37%); First Union National Bank, Charlotte, North Carolina,
owned approximately 5,393,955 shares (9.51%); Randor Alloys, Inc., Cranbury, New
Jersey, owned approximately 4,763,940 shares (8.40%); and Aztec Consulting
Services, Inc., Fort Lee, New Jersey, owned approximately 3,398,521 shares
(5.99%).
TRUSTEE COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $3,611 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $3,934 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $3,934 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and President and
Trustee 8 other investment companies in the
Fund Complex
James E. Dowd $3,934 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis,
M.D. $3,611 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty,
Jr. $3,934 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $3,611 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr. $3,611 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $3,611 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $3,611 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended December 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $669,639, $501,943, and $431,160,
respectively, of which $176,158, $215,343, and $228,371, respectively, were
waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $155,000, $155,108,
and $155,000, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Institutional Service Shares, the Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940.
Additionally, the Fund has adopted a Shareholder Services Agreement with respect
to Institutional Shares and Institutional Service Shares.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to: marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Plan, the Trustees expect that the Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund 's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, payments in the amount of $38,943
were made pursuant to the Plan for Institutional Service Shares, none of which
was paid to financial institutions. In addition, for the fiscal year ended
October 31, 1997, the Fund paid shareholder service fees for Institutional
Shares and Institutional Service Shares in the amounts of $321,195, and $97,357,
respectively, of which $64,239 and $58,414, respectively, were paid to financial
institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months; invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yield for Institutional
Shares and Institutional Service Shares was 3.20% and 3.10%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yield for
Institutional Shares and Institutional Service Shares was 3.26 and 3.15%,
respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 45.97% tax rate (the maximum combined effective
federal and state rates for individuals) and assuming that the income is 100%
tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yield for
Institutional Shares and Institutional Service Shares was 5.92% and 5.74%,
respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NEW JERSEY
SINGLE RETURN
TAX BRACKET: FEDERAL
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE
16.75% 33.53% 37.37% 42.37% 45.97%
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
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.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NEW JERSEY
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- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
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.
The charts above are for illustrative purposes only. They are not indicators of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year and five-year periods ended October 31, 1997, and for the
period from December 13, 1990 (date of initial public investment) through
October 31, 1997, the average annual total returns were 3.18%, 2.86%, and 3.07%,
respectively, for Institutional Shares, and were 3.08%, 2.76%, and 2.97%,
respectively, for Institutional Service Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime, and 21 municipal with
assets approximating $28.0 billion, $12.8 billion, and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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 2,200broker/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, Federated
Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
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, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
OHIO MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Cash II Shares
PROSPECTUS
The Cash II Shares of Ohio Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Ohio municipal securities, including securities
of states, territories, and possessions of the United States which are not
issued by or on behalf of Ohio, or its political subdivisions and financing
authorities, but which provide current income exempt from federal regular income
tax and the personal income taxes imposed by the State of Ohio and Ohio
municipalities consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights - Cash II Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Cash II Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 7
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 10
Federal Income Tax 10
State and Local Taxes 10
Other Classes of Shares 11
Performance Information 11
Financial Highlights - Institutional Service Shares 12
Financial Highlights - Institutional Shares 13
Financial Statements 14
Report of Independent Public Accountants 29
<TABLE>
<CAPTION>
SUMMARY OF FUND EXPENSES
CASH II SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.17%
12b-1 Fee (after waiver)(2) 0.25%
Total Other Expenses 0.45%
Shareholder Services Fee 0.25%
Total Operating Expenses (after waivers)(3) 0.87%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate the voluntary waiver at any
time at its sole discretion. The maximum 12b-1 fee is 0.30%.
(3) The total operating expenses would have been 1.15% absent the voluntary
waivers of portions of the management fee and 12b-1 fee.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Cash II Shares of the Fund will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Fund Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
- ------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 9
3 Years $ 28
5 Years $ 48
10 Years $107
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B) 2.98% 2.96% 3.30% 2.10% 2.02% 2.90% 2.27%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.87% 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%*
- -----------------------------------------
Net investment income 2.94% 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.28% 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $245,329 $206,149 $188,234 $156,051 $127,017 $133,877 $94,081
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known Institutional Service
Shares, Cash II Shares, and Institutional Shares. This prospectus relates only
to Cash II Shares of the Fund, which are designed primarily for retail customers
of financial institutions as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Ohio municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Ohio taxpayers because it invests in municipal securities of that state.
A minimum initial investment of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Ohio
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal
Securities"). Examples of Ohio Municipal Securities include, but are not limited
to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Ohio Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Ohio Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Ohio Municipal
Securities is subject to the federal alternative minimum tax.
OHIO MUNICIPAL SECURITIES
Ohio Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Ohio Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Ohio Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio Municipal Securities and participation interests, or the credit enhancers
of either, to meet their obligations for the payment of interest and principal
when due. In addition, from time to time, the supply of Ohio Municipal
Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Ohio Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Ohio Municipal Securities could involve an increased risk to the Fund should any
of these related projects or facilities experience financial difficulties.
Obligations of issuers of Ohio Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these considerations, the Fund's
concentration in Ohio Municipal Securities may entail a greater level of risk
than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. The Fund will not invest more than 10%
of its net assets in securities subject to restrictions on resale under the
Securities Act of 1933. These investment limitations cannot be changed without
shareholder approval. The following limitation may be changed without
shareholder approval. The Fund will not invest more than 10% of the value of its
net assets in illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II
Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.30% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- ------- -------------------------------------
0.15% on the first $250 million 0.125% on the next $250 million 0.10% on the
next $250 million 0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash II
Shares from the value of Fund assets attributable to Cash II Shares, and
dividing the remainder by the number of Cash II Shares outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio
Municipal Cash Trust - Cash II Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to Ohio Municipal Cash Trust - Cash II Shares. Please include an account number
on the check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper
form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Parcol & Co., Oaks, Pennsylvania, owned 48.95% of the
voting securities of the Institutional Service Shares of the Fund; Gradison &
Company, Inc., for the exclusive benefit of its customers, Cincinnati, Ohio,
owned 78.38% of the voting securities of the Cash II Shares of the Fund; and
Panabco, Newark, Ohio, owned 29.24% of the voting securities of the
Institutional Shares of the Fund. These companies may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OHIO TAXES
Under existing Ohio laws, distributions made by the Fund will not be subject to
Ohio individual income taxes to the extent that such distributions qualify as
exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest from obligations of Ohio or its subdivisions which is exempt from
federal income tax; or (ii) interest or dividends from obligations issued by the
United States and its territories or possessions or by any authority, commission
or instrumentality of the United States which are exempt from state income tax
under federal laws. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such distributions will be
subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent (i) interest from obligations of
Ohio or its subdivisions which is exempt from federal income tax; or (ii) net
interest income from obligations issued by the United States and its territories
or possessions or by any authority, commission or instrumentality of the United
States, which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political subdivisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
law to levy a tax on intangible income).
OTHER CLASSES OF SHARES
The Fund also offers two other classes of shares called Institutional Service
Shares and Institutional Shares. Both Institutional Service Shares and
Institutional Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary or agency capacity and both are subject to a
minimum initial investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Service Shares and Institutional Shares are distributed with no
12b-1 Plan, but are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.04 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.03) (0.03) (0.04) (0.02 (0.02) (0.03) (0.02)
- ------------------------------------------ ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------ ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B) 3.29% 3.27% 3.61% 2.41% 2.33% 3.21% 2.40%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.57% 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%*
- -----------------------------------------
Net investment income 3.25% 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.28% 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $80,619 $59,721 $72,931 $62,499 $81,748 $74,342 $44,771
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED
OCTOBER 31,
-------------------
1997 1996(A)
--------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.02)
- ----------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ----------------------------------------- ------- -------
TOTAL RETURN(B) 3.49% 2.22%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.37% 0.37%*
- -----------------------------------------
Net investment income 3.40% 3.38%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.48% 0.51%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $55,710 $72,680
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 99.4%
- --------------------------------------------------------------------------------------------------------------
OHIO -- 99.4%
- --------------------------------------------------------------------------------------------------------------
$575,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting Nurses)/
(National City Bank, Cleveland, OH LOC) $575,000
-----------------------------------------------------------------------------------------------
2,480,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, Inc.)/
(National City Bank, Cleveland, OH LOC) 2,480,000
-----------------------------------------------------------------------------------------------
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. LOC) 5,875,000
-----------------------------------------------------------------------------------------------
1,800,000 Belmont County, OH, Water System Improvement (Series C), 4.16% BANs, 12/15/1997 1,800,665
-----------------------------------------------------------------------------------------------
1,860,000 Canfield, OH Local School District, School Improvement (Series 1997), 4.125% BANs, 10/1/1998 1,863,021
-----------------------------------------------------------------------------------------------
7,000,000 Clermont County, OH , Variable Rate IDRB's (Series 1997) Weekly VRDNs
(Buriot International, Inc.)/(KeyBank, N.A. LOC) 7,000,000
-----------------------------------------------------------------------------------------------
1,255,000 Cleveland Heights, OH, 4.25% BANs, 8/27/1998 1,258,958
-----------------------------------------------------------------------------------------------
2,335,000 (b)Cleveland, OH Parking Facilities, PA-182 (Series 1996) Weekly VRDNs (MBIA INS)/
(Merrill Lynch Capital Services, Inc. LIQ) 2,335,000
-----------------------------------------------------------------------------------------------
1,700,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton Memorial Hospital)/
(National City Bank, Columbus, OH LOC) 1,700,000
-----------------------------------------------------------------------------------------------
1,805,000 Columbiana County, OH, Industrial Development Revenue Bonds Weekly VRDNs
(C & S Land Company Project)/(Bank One, Ohio, N.A. LOC) 1,805,000
-----------------------------------------------------------------------------------------------
1,500,000 Conneaut, OH, Water Treatment Improvement General Limited Tax, 4.50% BANs, 4/14/1998 1,501,611
-----------------------------------------------------------------------------------------------
8,000,000 Cuyahoga County, OH Hospital Authority, (Series 1997 D) Weekly VRDNs (Cleveland Clinic)/
(Bank of America NT and SA, San Francisco LIQ) 8,000,000
-----------------------------------------------------------------------------------------------
600,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League (Cuyahoga County))/
(KeyBank, N.A. LOC) 600,000
-----------------------------------------------------------------------------------------------
1,500,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, Inc.)/(KeyBank, N.A. LOC) 1,500,000
-----------------------------------------------------------------------------------------------
370,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, Inc.)/
(Huntington National Bank, Columbus, OH LOC) 370,000
-----------------------------------------------------------------------------------------------
640,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway West)/
(KeyBank, N.A. LOC) 640,000
-----------------------------------------------------------------------------------------------
950,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing Corp.)/
(National City Bank, Kentucky LOC) 950,000
-----------------------------------------------------------------------------------------------
1,825,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon Precision
Casting Co. Project)/(KeyBank, N.A. LOC) 1,825,000
-----------------------------------------------------------------------------------------------
4,000,000 Dayton, OH, Airport Improvement BAN's (Series 1996), 3.80% BANs, 12/16/1997 4,000,765
-----------------------------------------------------------------------------------------------
1,585,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, Inc. Project)/
(KeyBank, N.A. LOC) 1,585,000
-----------------------------------------------------------------------------------------------
2,000,000 Elyria, OH, Police Station Improvement Notes, (Series 1997), 4.00% BANs, 12/4/1997 2,000,437
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$5,245,000 Erie County, OH, Adjustable Rate Demand Health Care Facilities Bonds (Series 1996A)
Weekly VRDNs (Providence Care Center)/(Fifth Third Bank of Northwestern OH LOC) $5,245,000
-----------------------------------------------------------------------------------------------
1,000,000 Euclid, OH, 4.12% BANs, 7/31/1998 1,001,215
-----------------------------------------------------------------------------------------------
5,395,000 Franklin County, OH Hospital Facility Authority, (Series 1992) Weekly VRDNs
(Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati LOC) 5,395,000
-----------------------------------------------------------------------------------------------
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC Bank, Ohio, N.A. LOC) 4,500,000
-----------------------------------------------------------------------------------------------
2,940,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/
(Fifth Third Bank, Cincinnati LOC) 2,940,000
-----------------------------------------------------------------------------------------------
3,310,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon L.L.C. Project)/
(Norwest Bank Minnesota, Minneapolis LOC) 3,310,000
-----------------------------------------------------------------------------------------------
4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's (Series 1996A) Weekly VRDNs
(Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) 4,900,000
-----------------------------------------------------------------------------------------------
2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's (Series 1996B) Weekly VRDNs
(Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) 2,100,000
-----------------------------------------------------------------------------------------------
1,995,000 Franklin County, OH, Adjustable Rate Demand Economic Development Revenue Refunding
Bonds (Series 1996) Weekly VRDNs (CPM Investments)/(Huntington National Bank,
Columbus, OH LOC) 1,995,000
-----------------------------------------------------------------------------------------------
1,395,000 Franklin County, OH, Health Care Facilities Revenue Bonds (Series 1994) Weekly VRDNs
(Wesley Glenn, Inc.)/(Fifth Third Bancorp LOC) 1,395,000
-----------------------------------------------------------------------------------------------
8,035,000 Greene County, OH, (Series 1997F), 4.10% BANs, 9/10/1998 8,051,582
-----------------------------------------------------------------------------------------------
1,635,000 Greene County, OH, Various Purpose Certificates of Indebtedness, 4.00% BANs, 12/11/1997 1,635,589
-----------------------------------------------------------------------------------------------
5,600,000 Hamilton County, OH Health System Weekly VRDNs (West Park Community)/
(Fifth Third Bank, Cincinnati LOC) 5,600,000
-----------------------------------------------------------------------------------------------
7,500,000 Henry County Ohio, Series 1996 Automatic Feed Project Weekly VRDNs
(Huntington National Bank, Columbus, OH LOC) 7,500,000
-----------------------------------------------------------------------------------------------
2,400,000 Highland Heights City, OH, 3.97% BANs, 12/18/1997 2,400,655
-----------------------------------------------------------------------------------------------
1,000,000 Hilliard, OH, (Series 1997-B), 4.15% BANs, 9/10/1998 1,002,470
-----------------------------------------------------------------------------------------------
3,800,000 Hilliard, OH, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs (Medex, Inc.)/
(Bank One, Ohio, N.A. LOC) 3,800,000
-----------------------------------------------------------------------------------------------
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/
(Rabobank Nederland, Utrecht LOC) 2,000,000
-----------------------------------------------------------------------------------------------
1,430,600 Huber Heights, OH, 4.00% BANs, 1/23/1998 1,431,539
-----------------------------------------------------------------------------------------------
1,160,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, Inc. Project)/
(KeyBank, N.A. LOC) 1,160,000
-----------------------------------------------------------------------------------------------
1,357,000 Huron City, OH, Various Purpose General Ltd Tax, 4.10% BANs, 2/25/1998 1,358,453
-----------------------------------------------------------------------------------------------
1,200,000 Kent, OH, Adjustable Rate IDRB's (Series 1994) Weekly VRDNs (Raven's Metal
Products, Inc. Project)/(First National Bank of Ohio, Akron LOC) 1,200,000
-----------------------------------------------------------------------------------------------
1,000,000 Lake County, OH, 4.00% BANs, 3/12/1998 1,000,861
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$3,300,000 Lake County, OH, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs (Apsco Properties, LTD.)/
(First National Bank of Ohio, Akron LOC) $3,300,000
-----------------------------------------------------------------------------------------------
1,600,000 Lisbon Village School District, OH, GO Unlimited School Improvement , 4.10% BANs, 9/3/1998 1,602,569
-----------------------------------------------------------------------------------------------
2,000,000 Lorain County, OH, Public Improvement GO Ltd. Tax, 4.22% BANs, 9/17/1998 2,004,554
-----------------------------------------------------------------------------------------------
4,190,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer Great Lakes Ltd., Inc.)/
(Bank One, Ohio, N.A. LOC) 4,190,000
-----------------------------------------------------------------------------------------------
1,175,000 Lorain Port Authority, OH, Adjustable Rate Demand Port Development Refunding Revenue
Bonds (Series 1996) Weekly VRDNs (Spitzer Project)/(Bank One, Ohio, N.A. LOC) 1,175,000
-----------------------------------------------------------------------------------------------
8,305,000 Lorain Port Authority, OH, IDRB (Series 1996) Weekly VRDNs (Brush Wellman, Inc.)/
(National City Bank, Cleveland, OH LOC) 8,305,000
-----------------------------------------------------------------------------------------------
800,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. LOC) 800,000
-----------------------------------------------------------------------------------------------
1,645,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds (Series 93) Weekly VRDNs
(Lott Industries, Inc.)/(National City Bank, Cleveland, OH LOC) 1,645,000
-----------------------------------------------------------------------------------------------
245,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs (Sunshine Children's Home)/
(National City Bank, Cleveland, OH LOC) 245,000
-----------------------------------------------------------------------------------------------
3,400,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs (Riverside Hospital, OH)/
(Huntington National Bank, Columbus, OH LOC) 3,400,000
-----------------------------------------------------------------------------------------------
1,585,000 Lucas County, OH, Metropolitan Sewer and Water District Improvement, 4.11%
BANs, 10/21/1998 1,588,397
-----------------------------------------------------------------------------------------------
1,000,000 Lyndhurst, OH, 4.00% BANs, 3/18/1998 1,000,721
-----------------------------------------------------------------------------------------------
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International Towers, Inc.)/
(PNC Bank, N.A. LOC) 5,325,000
-----------------------------------------------------------------------------------------------
580,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/(Bank One, Ohio, N.A. LOC) 580,000
-----------------------------------------------------------------------------------------------
3,750,000 Mayfield Village, OH IDA Weekly VRDNs (Beta Campus Co.)/(KeyBank, N.A. LOC) 3,750,000
-----------------------------------------------------------------------------------------------
7,400,000 Medina County, OH, (Series 1997) Weekly VRDNs (Plaza 71 Associates Ltd.)/
(Westdeutsche Landesbank Girozentrale LOC) 7,400,000
-----------------------------------------------------------------------------------------------
5,400,000 Medina County, OH, Solid Waste Disposal Revenue Bonds (Series 1995) Weekly VRDNs
(Valley City Steel Company Project)/(KeyBank, N.A. LOC) 5,400,000
-----------------------------------------------------------------------------------------------
1,925,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited Partnership)/
(Huntington National Bank, Columbus, OH LOC) 1,925,000
-----------------------------------------------------------------------------------------------
10,000,000 New Albany, OH Community Authority, Adjustable Rate Multi-Purpose Infrastructure
Improvement Bonds, (Series A) Weekly VRDNs (Huntington National Bank,
Columbus, OH LOC) 10,000,000
-----------------------------------------------------------------------------------------------
320,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, N.A. LOC) 320,000
-----------------------------------------------------------------------------------------------
825,000 North Olmsted, OH IDA, 4.05% TOBs (Therm-All)/(National City Bank, Cleveland, OH LOC),
Optional Tender 2/1/1998 825,000
-----------------------------------------------------------------------------------------------
1,295,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 1,295,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$4,520,000 Ohio HFA, (CR-18), (Series 1988A), 3.80% TOBs (GNMA COL)/(Citibank N.A., New York LIQ),
Optional Tender 2/1/1998 $4,520,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio HFA, (Series 1997 A-2), 3.65% TOBs, Mandatory Tender 3/2/1998 5,000,000
-----------------------------------------------------------------------------------------------
7,040,000 Ohio HFA, 3.90% TOBs (Lincoln Park Associates)/(Bank One, Ohio, N.A. LOC),
Optional Tender 11/1/1997 7,040,000
-----------------------------------------------------------------------------------------------
740,000 Ohio HFA, Multifamily Housing Revenue Bonds, (Series 1997), 4.76% TOBs (Wind River
Apartments)/(Republic National Bank of New York INV), Mandatory Tender 12/1/1997 740,000
-----------------------------------------------------------------------------------------------
2,960,000 (b)Ohio HFA, PT-122, 3.80% TOBs (GNMA COL)/(Banco Santander LIQ),
Mandatory Tender 11/6/1997 2,960,000
-----------------------------------------------------------------------------------------------
6,390,000 (b)Ohio HFA, Single Family Mortgage (Series PT-71), 4.00% TOBs (GNMA COL)/
(Commerzbank AG, Frankfurt LIQ), Mandatory Tender 10/15/1998 6,390,000
-----------------------------------------------------------------------------------------------
11,235,000 (b)Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs (GNMA COL)/
(Bank of New York, New York LIQ) 11,235,000
-----------------------------------------------------------------------------------------------
3,300,000 (b)Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs (GNMA GTD)/
(Bank of New York, New York LIQ) 3,300,000
-----------------------------------------------------------------------------------------------
4,000,000 (b)Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs (GNMA COL)/
(Bank of New York, New York LIQ) 4,000,000
-----------------------------------------------------------------------------------------------
2,270,000 Ohio HFA, VRD Multifamily Housing Revenue Bonds (Series 1997) Weekly VRDNs
(Pine Crossing Ltd. Partnership)/(Sumitomo Bank Ltd., Osaka LOC) 2,270,000
-----------------------------------------------------------------------------------------------
3,800,000 Ohio State Air Quality Development Authority, (Series 1988A) Weekly VRDNs
(PPG Industries, Inc.) 3,800,000
-----------------------------------------------------------------------------------------------
1,725,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs (Notre Dame
College Project)/(National City Bank, Cleveland, OH LOC) 1,725,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State Public Facilities Commission, (Series II-B), 4.50% Bonds, 11/1/1998 5,034,740
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 1989) Weekly VRDNs
(Duquesne Light Power Co.)/(First National Bank of Chicago LOC) 5,000,000
-----------------------------------------------------------------------------------------------
10,000,000 Ohio State Water Development Authority, PCR Refunding Bonds Weekly VRDNs
(General Motors Corp.) 10,000,000
-----------------------------------------------------------------------------------------------
4,000,000 Ohio State Water Development Authority, PCR Bonds (Series 1988), 3.85% CP (Duquesne Light
Power Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/16/1997 4,000,000
-----------------------------------------------------------------------------------------------
3,500,000 Ohio State Water Development Authority, Pollution Control Facilities Revenue Bonds, 4.10%
TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1998 3,500,000
-----------------------------------------------------------------------------------------------
400,000 Ohio State Weekly VRDNs (John Carroll University, OH)/(PNC Bank, N.A. LOC) 400,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State, Environmental Improvement Revenue Bonds (Series 1996) Weekly VRDNs
(Newark Group Industries, Inc.)/(Chase Manhattan Bank N.A., New York LOC) 5,000,000
-----------------------------------------------------------------------------------------------
1,125,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, Inc.)/(National City Bank,
Columbus, OH LOC) 1,125,000
-----------------------------------------------------------------------------------------------
1,300,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic Corp.)/(National City Bank,
Columbus, OH LOC) 1,300,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$4,900,000 Oregon City, OH, 4.15% BANs, 12/18/1997 $4,903,041
-----------------------------------------------------------------------------------------------
1,150,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/(National City Bank,
Cleveland, OH LOC) 1,150,000
-----------------------------------------------------------------------------------------------
5,560,000 Ottawa County, OH, 4.15% BANs, 4/7/1998 5,565,747
-----------------------------------------------------------------------------------------------
5,000,000 Ottawa County, OH, Regional Water System Improvement , 4.125% BANs, 8/6/1998 5,009,140
-----------------------------------------------------------------------------------------------
85,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/(Bank One, Ohio, N.A. LOC) 85,000
-----------------------------------------------------------------------------------------------
340,000 Portage County, OH IDA, 3.95% TOBs (Neidlinger)/(KeyBank, N.A. LOC),
Optional Tender 3/1/1998 340,000
-----------------------------------------------------------------------------------------------
4,220,000 Portage County, OH IDA, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs
(Barnette Project)/(National City, Northeast LOC) 4,220,000
-----------------------------------------------------------------------------------------------
800,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs (Lovejoy Industries)/
(Star Bank, N.A., Cincinnati LOC) 800,000
-----------------------------------------------------------------------------------------------
4,375,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Medical Center Hospital Project)/(Fifth Third Bank, Cincinnati LOC) 4,375,000
-----------------------------------------------------------------------------------------------
3,800,000 Sandusky, OH, (Series 1997-1), 4.125% BANs, 9/17/1998 3,807,829
-----------------------------------------------------------------------------------------------
1,868,000 Sandusky, OH, 4.00% BANs, 11/26/1997 1,868,370
-----------------------------------------------------------------------------------------------
5,200,000 Scioto County, OH Hospital Authority Weekly VRDNs (AMBAC INS)/
(First National Bank of Chicago LIQ) 5,200,000
-----------------------------------------------------------------------------------------------
1,700,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. Francis Home)/
(National City Bank, Cleveland, OH LOC) 1,700,000
-----------------------------------------------------------------------------------------------
400,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third Bank, Cincinnati LOC) 400,000
-----------------------------------------------------------------------------------------------
480,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. LOC) 480,000
-----------------------------------------------------------------------------------------------
2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist Drill Co.)/
(Nationsbank, N.A., Charlotte LOC) 2,000,000
-----------------------------------------------------------------------------------------------
1,250,000 Springfield, OH, 4.17% BANs, 6/18/1998 1,251,655
-----------------------------------------------------------------------------------------------
1,000,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,000,000
-----------------------------------------------------------------------------------------------
2,055,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilkof Morris)/(KeyBank, N.A. LOC) 2,055,000
-----------------------------------------------------------------------------------------------
1,270,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs (Foundations Systems and
Anchors, Inc. Project)/(Bank One, Ohio, N.A. LOC) 1,270,000
-----------------------------------------------------------------------------------------------
1,215,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro Machinery Corp., Project)/
(Huntington National Bank, Columbus, OH LOC) 1,215,000
-----------------------------------------------------------------------------------------------
2,500,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited Partnership)/
(KeyBank, N.A. LOC) 2,500,000
-----------------------------------------------------------------------------------------------
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London Candies, Inc. )/
(Bank One, Ohio, N.A. LOC) 4,500,000
-----------------------------------------------------------------------------------------------
1,500,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Baker McMillen Co.)/
(National City, Northeast LOC) 1,500,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$820,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, Ohio, N.A. LOC),
Optional Tender 2/15/1998 $820,000
-----------------------------------------------------------------------------------------------
325,000 Summit County, OH IDR, 3.95% TOBs (Keltec Industries)/(Bank One, Ohio, N.A. LOC),
Optional Tender 3/1/1998 325,000
-----------------------------------------------------------------------------------------------
1,025,000 Summit County, OH IDR, 3.95% TOBs (Matech Machine Tool Co.)/(Bank One, Ohio, N.A. LOC),
Optional Tender 2/1/1998 1,025,000
-----------------------------------------------------------------------------------------------
1,030,000 Summit County, OH IDR, 3.95% TOBs (Rogers Industrial Products, Inc.)/
(Bank One, Ohio, N.A. LOC), Optional Tender 11/1/1997 1,030,000
-----------------------------------------------------------------------------------------------
725,000 Summit County, OH IDR, 3.95% TOBs (Universal Rack)/(National City Bank, Cleveland, OH LOC),
Optional Tender 3/1/1998 725,000
-----------------------------------------------------------------------------------------------
660,000 Summit County, OH IDR, 4.05% TOBs (Bechmer-Boyce Project)/(KeyBank, N.A. LOC),
Optional Tender 1/15/1998 660,000
-----------------------------------------------------------------------------------------------
1,575,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs
(Fomo Products, Inc.)/(First National Bank of Ohio, Akron LOC) 1,575,000
-----------------------------------------------------------------------------------------------
2,000,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1997) Weekly VRDNs (Svision)/
(Bank One, Ohio, N.A. LOC) 2,000,000
-----------------------------------------------------------------------------------------------
840,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin Printing Co., Inc.)/
(Bank One, Ohio, N.A. LOC) 840,000
-----------------------------------------------------------------------------------------------
2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry London Candies, Inc. )/
(Bank One, Ohio, N.A. LOC) 2,890,000
-----------------------------------------------------------------------------------------------
775,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech Project (OH))/
(KeyBank, N.A. LOC) 775,000
-----------------------------------------------------------------------------------------------
1,355,000 Summit County, OH IDR, Industrial Development Bonds (Series 1996) Weekly VRDNs
(Creative Screen Print Project)/(National City, Northeast LOC) 1,355,000
-----------------------------------------------------------------------------------------------
1,250,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs
(Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) 1,250,000
-----------------------------------------------------------------------------------------------
3,500,000 Summit County, OH, Adjustable Rate Healthcare Facilities Revenue Bonds (Series 1996)
Weekly VRDNs (United Disability Services, Inc.)/(First National Bank of Ohio, Akron LOC) 3,500,000
-----------------------------------------------------------------------------------------------
3,200,000 Toledo, OH, Adjustable Rate City Services Special Assessment Notes (Services 1997)
Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 3,200,000
-----------------------------------------------------------------------------------------------
4,000,000 Toledo-Lucas County, OH Port Authority, Airport Development Revenue Bonds (Series 1996-1)
Weekly VRDNs (Burlington Air Express, Inc.)/(ABN AMRO Bank N.V., Amsterdam LOC) 4,000,000
-----------------------------------------------------------------------------------------------
1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa Corp.)/
(Bayerische Vereinsbank AG, Munich LOC) 1,000,000
-----------------------------------------------------------------------------------------------
2,300,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald Steel Corp.)/
(PNC Bank, N.A. LOC) 2,300,000
-----------------------------------------------------------------------------------------------
1,300,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) Weekly VRDNs
(Churchill Downs, Inc.)/(Bank One, Ohio, N.A. LOC) 1,300,000
-----------------------------------------------------------------------------------------------
1,130,000 Tuscarawas County, OH, Adjustable Rate IDRB's (Series 1995) Weekly VRDNs
(Primary Packaging, Inc.)/(First National Bank of Ohio, Akron LOC) 1,130,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB's (Series 1996) Weekly VRDNs
(Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC) $2,650,000
-----------------------------------------------------------------------------------------------
1,080,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly VRDNs (Pine Ridge
Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,080,000
-----------------------------------------------------------------------------------------------
1,155,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge
Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,155,000
-----------------------------------------------------------------------------------------------
1,200,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/
(National City Bank, Cleveland, OH LOC) 1,200,000
-----------------------------------------------------------------------------------------------
2,120,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/(Huntington National Bank,
Columbus, OH LOC) 2,120,000
-----------------------------------------------------------------------------------------------
3,000,000 Wooster City, OH, Waterworks System Improvement (Series 1996), 4.125% BANs, 11/20/1997 3,000,564
-----------------------------------------------------------------------------------------------
4,170,000 Youngstown, OH, Adjustable Rate Demand IDRB's (Series 1996A) Weekly VRDNs
(Cantar/Polyair Corp./Performa Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) 4,170,000
----------------------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $379,275,148
----------------------------------------------------------------------------------------------- ----------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 49.8% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (unaudited)
First Tier Second Tier
---------- -----------
96.0% 4.0%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $30,220,000 which represents 7.9% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($381,658,739) at October 31, 1997.
AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation
Notes COL -- Collateralized CP -- Commercial Paper EDRB -- Economic Development
Revenue Bonds GNMA -- Government National Mortgage Association GO -- General
Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial
Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial
Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ --
Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors
Assurance PCR -- Pollution Control Revenue TOBs -- Tender Option Bonds VRDNs --
Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $379,275,148
- ----------------------------------------------------------------------------------
Cash 131,655
- ----------------------------------------------------------------------------------
Income receivable 2,842,365
- ----------------------------------------------------------------------------------
Receivable for shares sold 50,094
- ---------------------------------------------------------------------------------- ------------
Total assets 382,299,262
- ----------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable for shares redeemed $97,151
- ------------------------------------------------------------------
Income distribution payable 366,587
- ------------------------------------------------------------------
Accrued expenses 176,785
- ------------------------------------------------------------------ ------------
Total liabilities 640,523
- ---------------------------------------------------------------------------------- ------------
NET ASSETS for 381,658,739 shares outstanding $381,658,739
- ---------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ----------------------------------------------------------------------------------
$80,619,487 (divided by) 80,619,487 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
CASH II SHARES:
- ----------------------------------------------------------------------------------
$245,328,833 (divided by) 245,328,833 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- ----------------------------------------------------------------------------------
$55,710,419 (divided by) 55,710,419 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
OHIO MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest $13,788,155
- -------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $1,448,035
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 273,333
- ----------------------------------------------------------------------------------
Custodian fees 24,975
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 239,112
- ----------------------------------------------------------------------------------
Directors'/Trustees' fees 3,825
- ----------------------------------------------------------------------------------
Auditing fees 13,544
- ----------------------------------------------------------------------------------
Legal fees 9,355
- ----------------------------------------------------------------------------------
Portfolio accounting fees 111,189
- ----------------------------------------------------------------------------------
Distribution services fee -- Cash II Shares 683,505
- ----------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 178,006
- ----------------------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 569,588
- ----------------------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 157,340
- ----------------------------------------------------------------------------------
Share registration costs 42,673
- ----------------------------------------------------------------------------------
Printing and postage 25,947
- ----------------------------------------------------------------------------------
Insurance premiums 5,384
- ----------------------------------------------------------------------------------
Taxes 569
- ----------------------------------------------------------------------------------
Miscellaneous 3,419
- ---------------------------------------------------------------------------------- ------------
Total expenses 3,789,799
- ----------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------
Waiver of investment advisory fee ($846,106)
- ------------------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (113,917)
- ------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (35,601)
- ------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Shares (157,340)
- ------------------------------------------------------------------ ------------
Total waivers (1,152,964)
- ---------------------------------------------------------------------------------- ------------
Net expenses 2,636,835
- ------------------------------------------------------------------------------------------------- ------------
Net investment income $11,151,320
- ------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
OHIO MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS --
- ----------------------------------------------------------------
Net investment income $11,151,320 $8,958,075
- ---------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ----------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------
Institutional Service Shares (2,309,907) (2,339,083)
- ----------------------------------------------------------------
Cash II Shares (6,696,096) (5,962,329)
- ----------------------------------------------------------------
Institutional Shares (2,145,317) (656,663)
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to (11,151,320) (8,958,075)
shareholders
- ---------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS --
- ----------------------------------------------------------------
Proceeds from sale of shares 1,714,819,513 1,408,349,215
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 7,135,525 6,083,711
- ----------------------------------------------------------------
Cost of shares redeemed (1,678,846,130) (1,337,048,550)
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 43,108,908 77,384,376
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets 43,108,908 77,384,376
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 338,549,831 261,165,455
- ---------------------------------------------------------------- --------------- ---------------
End of period $381,658,739 $338,549,831
- ---------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Ohio Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash II Shares and
Institutional Shares. The investment objective of the Fund is current income
exempt from federal regular income tax and the personal income taxes imposed by
the State of Ohio and Ohio municipalities consistent with stability of
principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
- ------------------------------------------------------ -------------------- ----------------
<S> <C> <C>
Cleveland, OH Parking Facilities, PA-182 (Series 1996) 10/10/97 $2,335,000
Ohio HFA, PT-122 8/18/97 2,960,000
Ohio HFA, Single Family Mortgage (Series PT-71) 9/1/97 6,390,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) 4/14/1997-10/17/1997 11,235,000
Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) 9/13/96 3,300,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-5) 7/1/97 4,000,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $381,658,739.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SERVICE SHARES 1997 1996
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 204,340,077 440,264,015
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 477,179 226,623
- --------------------------------------------------------------------------
Shares redeemed (183,918,781) (453,700,715)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Service Share transactions 20,898,475 (13,210,077)
- -------------------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
CASH II SHARES 1997 1996
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 846,566,747 681,930,901
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 6,536,111 5,797,497
- --------------------------------------------------------------------------
Shares redeemed (813,922,799) (669,813,991)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Cash II Share transactions 39,180,059 17,914,407
- -------------------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 663,912,689 286,154,299
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 122,235 59,591
- --------------------------------------------------------------------------
Shares redeemed (681,004,550) (213,533,844)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Share transactions (16,969,626) 72,680,046
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 43,108,908 77,384,376
- -------------------------------------------------------------------------- ------------ ------------
(a) For the period from March 5, 1996 (date of initial public investment) to
October 31, 1996.
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Cash II
Shares. The Plan provides that the Fund may incur distribution expenses up to
0.30% of average daily net assets of Cash II Shares, annually, to compensate
FSC. The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $600,750,000 and $596,189,955,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 67.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(OHIO MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2, 12 and 13 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as
of October 31, 1997, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[GRAPHIC] FEDERATED INVESTORS
OHIO MUNICIPAL
CASH TRUST
(A Portfolio of Federated Municipal Trust)
Cash II Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
OHIO MUNICIPAL
CASH TRUST
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229840
1030105A-CII (12/97)
[GRAPHIC]
OHIO MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Ohio Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a portfolio of Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
Fund invests primarily in short-term Ohio municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Ohio, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights -- Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Confirmations and Account Statements 8
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 10
Performance Information 10
Financial Highlights -- Cash II Shares 11
Financial Highlights -- Institutional Service Shares 12
Financial Statements 13
Report of Independent Public Accountants 28
<TABLE>
<CAPTION>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.17%
12b-1 Fee None
Total Other Expenses 0.20%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses (after waivers)(3) 0.37%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.85% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 Year $ 4
3 Years $12
5 Years $21
10 Years $47
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED
OCTOBER 31,
-------------------
1997 1996(A)
--------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.02)
- ----------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ----------------------------------------- ------- -------
TOTAL RETURN(B) 3.49% 2.22%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.37% 0.37%*
- -----------------------------------------
Net investment income 3.40% 3.38%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.48% 0.51%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $55,710 $72,680
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Service
Shares, Cash II Shares, and Institutional Shares. This prospectus relates only
to Institutional Shares of the Fund, which are designed primarily for financial
institutions acting in a fiduciary or agency capacity as a convenient means of
accumulating an interest in a professionally managed portfolio investing in
short-term Ohio municipal securities. The Fund may not be a suitable investment
for retirement plans or for non-Ohio taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 over a 90-day
period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Ohio
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal
Securities"). Examples of Ohio Municipal Securities include, but are not limited
to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Ohio Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Ohio Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Ohio Municipal
Securities is subject to the federal alternative minimum tax.
OHIO MUNICIPAL SECURITIES
Ohio Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Ohio Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Ohio Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio Municipal Securities and participation interests, or the credit enhancers
of either, to meet their obligations for the payment of interest and principal
when due. In addition, from time to time, the supply of Ohio Municipal
Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Ohio Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Ohio Municipal Securities could involve an increased risk to the Fund should any
of these related projects or facilities experience financial difficulties.
Obligations of issuers of Ohio Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these considerations, the Fund's
concentration in Ohio Municipal Securities may entail a greater level of risk
than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. The Fund will not invest more than 10%
of its net assets in securities subject to restrictions on resale under the
Securities Act of 1933. These investment limitations cannot be changed without
shareholder approval. The following limitation may be changed without
shareholder approval. The Fund will not invest more than 10% of the value of its
net assets in illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for
Institutional Shares of the Fund. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a
subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- ------- ------------------------------------
0.15% on the first $250 million
0.13% on the next $250 million
0.10% on the next $250 million
0.08% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) that day. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash Trust -- Institutional
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted. Questions on wire purchases should be directed to
your shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Ohio Municipal Cash Trust -- Institutional Shares. Please include an account
number on the check. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day after the check
is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper
form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Parcol & Co., Oaks, Pennsylvania, owned 48.95% of the
voting securities of the Institutional Service Shares of the Fund; Gradison &
Company, Inc., for the exclusive benefit of its customers, Cincinnati, Ohio,
owned 78.38% of the voting securities of the Cash II Shares of the Fund; and
Panabco, Newark, Ohio, owned 29.24% of the voting securities of the
Institutional Shares of the Fund. These companies may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OHIO TAXES
Under existing Ohio laws, distributions made by the Fund will not be subject to
Ohio individual income taxes to the extent that such distributions qualify as
exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest from obligations of Ohio or its subdivisions which is exempt from
federal income tax; or (ii) interest or dividends from obligations issued by the
United States and its territories or possessions or by any authority, commission
or instrumentality of the United States which are exempt from state income tax
under federal laws. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such distributions will be
subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent (i) interest from obligations of
Ohio or its subdivisions which is exempt from federal income tax; or (ii) net
interest income from obligations issued by the United States and its territories
or possessions or by any authority, commission or instrumentality of the United
States, which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political subdivisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
law to levy a tax on intangible income).
OTHER CLASSES OF SHARES
The Fund also offers two other classes of shares called Institutional Service
Shares and Cash II Shares. Institutional Service Shares are sold at net asset
value primarily to financial institutions acting in a fiduciary or agency
capacity and are subject to a minimum initial investment of $25,000 over a
90-day period. Cash II Shares are sold at net asset value primarily to retail
customers of financial institutions and are also subject to a minimum initial
investment of $25,000 over a 90-day period.
All classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan, but are subject
to shareholder services fees.
Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also
are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B) 2.98% 2.96% 3.30% 2.10% 2.02% 2.90% 2.27%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.87% 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%*
- -----------------------------------------
Net investment income 2.94% 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.28% 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $245,329 $206,149 $188,234 $156,051 $127,017 $133,877 $94,081
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.04 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.04) (0.02 (0.02) (0.03) (0.02)
- ------------------------------------------ ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------ ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B) 3.29% 3.27% 3.61% 2.41% 2.33% 3.21% 2.40%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.57% 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%*
- -----------------------------------------
Net investment income 3.25% 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.28% 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $80,619 $59,721 $72,931 $62,499 $81,748 $74,342 $44,771
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 99.4%
- --------------------------------------------------------------------------------------------------------------
OHIO -- 99.4%
- --------------------------------------------------------------------------------------------------------------
$575,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting Nurses)/
(National City Bank, Cleveland, OH LOC) $575,000
-----------------------------------------------------------------------------------------------
2,480,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, Inc.)/
(National City Bank, Cleveland, OH LOC) 2,480,000
-----------------------------------------------------------------------------------------------
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. LOC) 5,875,000
-----------------------------------------------------------------------------------------------
1,800,000 Belmont County, OH, Water System Improvement (Series C), 4.16% BANs, 12/15/1997 1,800,665
-----------------------------------------------------------------------------------------------
1,860,000 Canfield, OH Local School District, School Improvement (Series 1997), 4.125% BANs, 10/1/1998 1,863,021
-----------------------------------------------------------------------------------------------
7,000,000 Clermont County, OH , Variable Rate IDRB's (Series 1997) Weekly VRDNs
(Buriot International, Inc.)/(KeyBank, N.A. LOC) 7,000,000
-----------------------------------------------------------------------------------------------
1,255,000 Cleveland Heights, OH, 4.25% BANs, 8/27/1998 1,258,958
-----------------------------------------------------------------------------------------------
2,335,000 (b)Cleveland, OH Parking Facilities, PA-182 (Series 1996) Weekly VRDNs (MBIA INS)/
(Merrill Lynch Capital Services, Inc. LIQ) 2,335,000
-----------------------------------------------------------------------------------------------
1,700,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton Memorial Hospital)/
(National City Bank, Columbus, OH LOC) 1,700,000
-----------------------------------------------------------------------------------------------
1,805,000 Columbiana County, OH, Industrial Development Revenue Bonds Weekly VRDNs
(C & S Land Company Project)/(Bank One, Ohio, N.A. LOC) 1,805,000
-----------------------------------------------------------------------------------------------
1,500,000 Conneaut, OH, Water Treatment Improvement General Limited Tax, 4.50% BANs, 4/14/1998 1,501,611
-----------------------------------------------------------------------------------------------
8,000,000 Cuyahoga County, OH Hospital Authority, (Series 1997 D) Weekly VRDNs (Cleveland Clinic)/
(Bank of America NT and SA, San Francisco LIQ) 8,000,000
-----------------------------------------------------------------------------------------------
600,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League (Cuyahoga County))/
(KeyBank, N.A. LOC) 600,000
-----------------------------------------------------------------------------------------------
1,500,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, Inc.)/(KeyBank, N.A. LOC) 1,500,000
-----------------------------------------------------------------------------------------------
370,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, Inc.)/
(Huntington National Bank, Columbus, OH LOC) 370,000
-----------------------------------------------------------------------------------------------
640,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway West)/
(KeyBank, N.A. LOC) 640,000
-----------------------------------------------------------------------------------------------
950,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing Corp.)/
(National City Bank, Kentucky LOC) 950,000
-----------------------------------------------------------------------------------------------
1,825,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon Precision
Casting Co. Project)/(KeyBank, N.A. LOC) 1,825,000
-----------------------------------------------------------------------------------------------
4,000,000 Dayton, OH, Airport Improvement BAN's (Series 1996), 3.80% BANs, 12/16/1997 4,000,765
-----------------------------------------------------------------------------------------------
1,585,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, Inc. Project)/
(KeyBank, N.A. LOC) 1,585,000
-----------------------------------------------------------------------------------------------
2,000,000 Elyria, OH, Police Station Improvement Notes, (Series 1997), 4.00% BANs, 12/4/1997 2,000,437
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$5,245,000 Erie County, OH, Adjustable Rate Demand Health Care Facilities Bonds (Series 1996A)
Weekly VRDNs (Providence Care Center)/(Fifth Third Bank of Northwestern OH LOC) $5,245,000
-----------------------------------------------------------------------------------------------
1,000,000 Euclid, OH, 4.12% BANs, 7/31/1998 1,001,215
-----------------------------------------------------------------------------------------------
5,395,000 Franklin County, OH Hospital Facility Authority, (Series 1992) Weekly VRDNs
(Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati LOC) 5,395,000
-----------------------------------------------------------------------------------------------
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC Bank, Ohio, N.A. LOC) 4,500,000
-----------------------------------------------------------------------------------------------
2,940,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/
(Fifth Third Bank, Cincinnati LOC) 2,940,000
-----------------------------------------------------------------------------------------------
3,310,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon L.L.C. Project)/
(Norwest Bank Minnesota, Minneapolis LOC) 3,310,000
-----------------------------------------------------------------------------------------------
4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's (Series 1996A) Weekly VRDNs
(Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) 4,900,000
-----------------------------------------------------------------------------------------------
2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's (Series 1996B) Weekly VRDNs
(Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) 2,100,000
-----------------------------------------------------------------------------------------------
1,995,000 Franklin County, OH, Adjustable Rate Demand Economic Development Revenue Refunding
Bonds (Series 1996) Weekly VRDNs (CPM Investments)/(Huntington National Bank,
Columbus, OH LOC) 1,995,000
-----------------------------------------------------------------------------------------------
1,395,000 Franklin County, OH, Health Care Facilities Revenue Bonds (Series 1994) Weekly VRDNs
(Wesley Glenn, Inc.)/(Fifth Third Bancorp LOC) 1,395,000
-----------------------------------------------------------------------------------------------
8,035,000 Greene County, OH, (Series 1997F), 4.10% BANs, 9/10/1998 8,051,582
-----------------------------------------------------------------------------------------------
1,635,000 Greene County, OH, Various Purpose Certificates of Indebtedness, 4.00% BANs, 12/11/1997 1,635,589
-----------------------------------------------------------------------------------------------
5,600,000 Hamilton County, OH Health System Weekly VRDNs (West Park Community)/
(Fifth Third Bank, Cincinnati LOC) 5,600,000
-----------------------------------------------------------------------------------------------
7,500,000 Henry County Ohio, Series 1996 Automatic Feed Project Weekly VRDNs
(Huntington National Bank, Columbus, OH LOC) 7,500,000
-----------------------------------------------------------------------------------------------
2,400,000 Highland Heights City, OH, 3.97% BANs, 12/18/1997 2,400,655
-----------------------------------------------------------------------------------------------
1,000,000 Hilliard, OH, (Series 1997-B), 4.15% BANs, 9/10/1998 1,002,470
-----------------------------------------------------------------------------------------------
3,800,000 Hilliard, OH, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs (Medex, Inc.)/
(Bank One, Ohio, N.A. LOC) 3,800,000
-----------------------------------------------------------------------------------------------
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/
(Rabobank Nederland, Utrecht LOC) 2,000,000
-----------------------------------------------------------------------------------------------
1,430,600 Huber Heights, OH, 4.00% BANs, 1/23/1998 1,431,539
-----------------------------------------------------------------------------------------------
1,160,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, Inc. Project)/
(KeyBank, N.A. LOC) 1,160,000
-----------------------------------------------------------------------------------------------
1,357,000 Huron City, OH, Various Purpose General Ltd Tax, 4.10% BANs, 2/25/1998 1,358,453
-----------------------------------------------------------------------------------------------
1,200,000 Kent, OH, Adjustable Rate IDRB's (Series 1994) Weekly VRDNs (Raven's Metal
Products, Inc. Project)/(First National Bank of Ohio, Akron LOC) 1,200,000
-----------------------------------------------------------------------------------------------
1,000,000 Lake County, OH, 4.00% BANs, 3/12/1998 1,000,861
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$3,300,000 Lake County, OH, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs (Apsco Properties, LTD.)/
(First National Bank of Ohio, Akron LOC) $3,300,000
-----------------------------------------------------------------------------------------------
1,600,000 Lisbon Village School District, OH, GO Unlimited School Improvement , 4.10% BANs, 9/3/1998 1,602,569
-----------------------------------------------------------------------------------------------
2,000,000 Lorain County, OH, Public Improvement GO Ltd. Tax, 4.22% BANs, 9/17/1998 2,004,554
-----------------------------------------------------------------------------------------------
4,190,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer Great Lakes Ltd., Inc.)/
(Bank One, Ohio, N.A. LOC) 4,190,000
-----------------------------------------------------------------------------------------------
1,175,000 Lorain Port Authority, OH, Adjustable Rate Demand Port Development Refunding Revenue
Bonds (Series 1996) Weekly VRDNs (Spitzer Project)/(Bank One, Ohio, N.A. LOC) 1,175,000
-----------------------------------------------------------------------------------------------
8,305,000 Lorain Port Authority, OH, IDRB (Series 1996) Weekly VRDNs (Brush Wellman, Inc.)/
(National City Bank, Cleveland, OH LOC) 8,305,000
-----------------------------------------------------------------------------------------------
800,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. LOC) 800,000
-----------------------------------------------------------------------------------------------
1,645,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds (Series 93) Weekly VRDNs
(Lott Industries, Inc.)/(National City Bank, Cleveland, OH LOC) 1,645,000
-----------------------------------------------------------------------------------------------
245,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs (Sunshine Children's Home)/
(National City Bank, Cleveland, OH LOC) 245,000
-----------------------------------------------------------------------------------------------
3,400,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs (Riverside Hospital, OH)/
(Huntington National Bank, Columbus, OH LOC) 3,400,000
-----------------------------------------------------------------------------------------------
1,585,000 Lucas County, OH, Metropolitan Sewer and Water District Improvement, 4.11%
BANs, 10/21/1998 1,588,397
-----------------------------------------------------------------------------------------------
1,000,000 Lyndhurst, OH, 4.00% BANs, 3/18/1998 1,000,721
-----------------------------------------------------------------------------------------------
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International Towers, Inc.)/
(PNC Bank, N.A. LOC) 5,325,000
-----------------------------------------------------------------------------------------------
580,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/(Bank One, Ohio, N.A. LOC) 580,000
-----------------------------------------------------------------------------------------------
3,750,000 Mayfield Village, OH IDA Weekly VRDNs (Beta Campus Co.)/(KeyBank, N.A. LOC) 3,750,000
-----------------------------------------------------------------------------------------------
7,400,000 Medina County, OH, (Series 1997) Weekly VRDNs (Plaza 71 Associates Ltd.)/
(Westdeutsche Landesbank Girozentrale LOC) 7,400,000
-----------------------------------------------------------------------------------------------
5,400,000 Medina County, OH, Solid Waste Disposal Revenue Bonds (Series 1995) Weekly VRDNs
(Valley City Steel Company Project)/(KeyBank, N.A. LOC) 5,400,000
-----------------------------------------------------------------------------------------------
1,925,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited Partnership)/
(Huntington National Bank, Columbus, OH LOC) 1,925,000
-----------------------------------------------------------------------------------------------
10,000,000 New Albany, OH Community Authority, Adjustable Rate Multi-Purpose Infrastructure
Improvement Bonds, (Series A) Weekly VRDNs (Huntington National Bank,
Columbus, OH LOC) 10,000,000
-----------------------------------------------------------------------------------------------
320,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, N.A. LOC) 320,000
-----------------------------------------------------------------------------------------------
825,000 North Olmsted, OH IDA, 4.05% TOBs (Therm-All)/(National City Bank, Cleveland, OH LOC),
Optional Tender 2/1/1998 825,000
-----------------------------------------------------------------------------------------------
1,295,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 1,295,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$4,520,000 Ohio HFA, (CR-18), (Series 1988A), 3.80% TOBs (GNMA COL)/(Citibank N.A., New York LIQ),
Optional Tender 2/1/1998 $4,520,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio HFA, (Series 1997 A-2), 3.65% TOBs, Mandatory Tender 3/2/1998 5,000,000
-----------------------------------------------------------------------------------------------
7,040,000 Ohio HFA, 3.90% TOBs (Lincoln Park Associates)/(Bank One, Ohio, N.A. LOC),
Optional Tender 11/1/1997 7,040,000
-----------------------------------------------------------------------------------------------
740,000 Ohio HFA, Multifamily Housing Revenue Bonds, (Series 1997), 4.76% TOBs (Wind River
Apartments)/(Republic National Bank of New York INV), Mandatory Tender 12/1/1997 740,000
-----------------------------------------------------------------------------------------------
2,960,000 (b)Ohio HFA, PT-122, 3.80% TOBs (GNMA COL)/(Banco Santander LIQ),
Mandatory Tender 11/6/1997 2,960,000
-----------------------------------------------------------------------------------------------
6,390,000 (b)Ohio HFA, Single Family Mortgage (Series PT-71), 4.00% TOBs (GNMA COL)/
(Commerzbank AG, Frankfurt LIQ), Mandatory Tender 10/15/1998 6,390,000
-----------------------------------------------------------------------------------------------
11,235,000 (b)Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs (GNMA COL)/
(Bank of New York, New York LIQ) 11,235,000
-----------------------------------------------------------------------------------------------
3,300,000 (b)Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs (GNMA GTD)/
(Bank of New York, New York LIQ) 3,300,000
-----------------------------------------------------------------------------------------------
4,000,000 (b)Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs (GNMA COL)/
(Bank of New York, New York LIQ) 4,000,000
-----------------------------------------------------------------------------------------------
2,270,000 Ohio HFA, VRD Multifamily Housing Revenue Bonds (Series 1997) Weekly VRDNs
(Pine Crossing Ltd. Partnership)/(Sumitomo Bank Ltd., Osaka LOC) 2,270,000
-----------------------------------------------------------------------------------------------
3,800,000 Ohio State Air Quality Development Authority, (Series 1988A) Weekly VRDNs
(PPG Industries, Inc.) 3,800,000
-----------------------------------------------------------------------------------------------
1,725,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs (Notre Dame
College Project)/(National City Bank, Cleveland, OH LOC) 1,725,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State Public Facilities Commission, (Series II-B), 4.50% Bonds, 11/1/1998 5,034,740
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 1989) Weekly VRDNs
(Duquesne Light Power Co.)/(First National Bank of Chicago LOC) 5,000,000
-----------------------------------------------------------------------------------------------
10,000,000 Ohio State Water Development Authority, PCR Refunding Bonds Weekly VRDNs
(General Motors Corp.) 10,000,000
-----------------------------------------------------------------------------------------------
4,000,000 Ohio State Water Development Authority, PCR Bonds (Series 1988), 3.85% CP (Duquesne Light
Power Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/16/1997 4,000,000
-----------------------------------------------------------------------------------------------
3,500,000 Ohio State Water Development Authority, Pollution Control Facilities Revenue Bonds, 4.10%
TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1998 3,500,000
-----------------------------------------------------------------------------------------------
400,000 Ohio State Weekly VRDNs (John Carroll University, OH)/(PNC Bank, N.A. LOC) 400,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State, Environmental Improvement Revenue Bonds (Series 1996) Weekly VRDNs
(Newark Group Industries, Inc.)/(Chase Manhattan Bank N.A., New York LOC) 5,000,000
-----------------------------------------------------------------------------------------------
1,125,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, Inc.)/(National City Bank,
Columbus, OH LOC) 1,125,000
-----------------------------------------------------------------------------------------------
1,300,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic Corp.)/(National City Bank,
Columbus, OH LOC) 1,300,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$4,900,000 Oregon City, OH, 4.15% BANs, 12/18/1997 $4,903,041
-----------------------------------------------------------------------------------------------
1,150,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/(National City Bank,
Cleveland, OH LOC) 1,150,000
-----------------------------------------------------------------------------------------------
5,560,000 Ottawa County, OH, 4.15% BANs, 4/7/1998 5,565,747
-----------------------------------------------------------------------------------------------
5,000,000 Ottawa County, OH, Regional Water System Improvement , 4.125% BANs, 8/6/1998 5,009,140
-----------------------------------------------------------------------------------------------
85,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/(Bank One, Ohio, N.A. LOC) 85,000
-----------------------------------------------------------------------------------------------
340,000 Portage County, OH IDA, 3.95% TOBs (Neidlinger)/(KeyBank, N.A. LOC),
Optional Tender 3/1/1998 340,000
-----------------------------------------------------------------------------------------------
4,220,000 Portage County, OH IDA, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs
(Barnette Project)/(National City, Northeast LOC) 4,220,000
-----------------------------------------------------------------------------------------------
800,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs (Lovejoy Industries)/
(Star Bank, N.A., Cincinnati LOC) 800,000
-----------------------------------------------------------------------------------------------
4,375,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Medical Center Hospital Project)/(Fifth Third Bank, Cincinnati LOC) 4,375,000
-----------------------------------------------------------------------------------------------
3,800,000 Sandusky, OH, (Series 1997-1), 4.125% BANs, 9/17/1998 3,807,829
-----------------------------------------------------------------------------------------------
1,868,000 Sandusky, OH, 4.00% BANs, 11/26/1997 1,868,370
-----------------------------------------------------------------------------------------------
5,200,000 Scioto County, OH Hospital Authority Weekly VRDNs (AMBAC INS)/
(First National Bank of Chicago LIQ) 5,200,000
-----------------------------------------------------------------------------------------------
1,700,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. Francis Home)/
(National City Bank, Cleveland, OH LOC) 1,700,000
-----------------------------------------------------------------------------------------------
400,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third Bank, Cincinnati LOC) 400,000
-----------------------------------------------------------------------------------------------
480,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. LOC) 480,000
-----------------------------------------------------------------------------------------------
2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist Drill Co.)/
(Nationsbank, N.A., Charlotte LOC) 2,000,000
-----------------------------------------------------------------------------------------------
1,250,000 Springfield, OH, 4.17% BANs, 6/18/1998 1,251,655
-----------------------------------------------------------------------------------------------
1,000,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,000,000
-----------------------------------------------------------------------------------------------
2,055,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilkof Morris)/(KeyBank, N.A. LOC) 2,055,000
-----------------------------------------------------------------------------------------------
1,270,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs (Foundations Systems and
Anchors, Inc. Project)/(Bank One, Ohio, N.A. LOC) 1,270,000
-----------------------------------------------------------------------------------------------
1,215,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro Machinery Corp., Project)/
(Huntington National Bank, Columbus, OH LOC) 1,215,000
-----------------------------------------------------------------------------------------------
2,500,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited Partnership)/
(KeyBank, N.A. LOC) 2,500,000
-----------------------------------------------------------------------------------------------
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London Candies, Inc. )/
(Bank One, Ohio, N.A. LOC) 4,500,000
-----------------------------------------------------------------------------------------------
1,500,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Baker McMillen Co.)/
(National City, Northeast LOC) 1,500,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$820,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, Ohio, N.A. LOC),
Optional Tender 2/15/1998 $820,000
-----------------------------------------------------------------------------------------------
325,000 Summit County, OH IDR, 3.95% TOBs (Keltec Industries)/(Bank One, Ohio, N.A. LOC),
Optional Tender 3/1/1998 325,000
-----------------------------------------------------------------------------------------------
1,025,000 Summit County, OH IDR, 3.95% TOBs (Matech Machine Tool Co.)/(Bank One, Ohio, N.A. LOC),
Optional Tender 2/1/1998 1,025,000
-----------------------------------------------------------------------------------------------
1,030,000 Summit County, OH IDR, 3.95% TOBs (Rogers Industrial Products, Inc.)/
(Bank One, Ohio, N.A. LOC), Optional Tender 11/1/1997 1,030,000
-----------------------------------------------------------------------------------------------
725,000 Summit County, OH IDR, 3.95% TOBs (Universal Rack)/(National City Bank, Cleveland, OH LOC),
Optional Tender 3/1/1998 725,000
-----------------------------------------------------------------------------------------------
660,000 Summit County, OH IDR, 4.05% TOBs (Bechmer-Boyce Project)/(KeyBank, N.A. LOC),
Optional Tender 1/15/1998 660,000
-----------------------------------------------------------------------------------------------
1,575,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs
(Fomo Products, Inc.)/(First National Bank of Ohio, Akron LOC) 1,575,000
-----------------------------------------------------------------------------------------------
2,000,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1997) Weekly VRDNs (Svision)/
(Bank One, Ohio, N.A. LOC) 2,000,000
-----------------------------------------------------------------------------------------------
840,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin Printing Co., Inc.)/
(Bank One, Ohio, N.A. LOC) 840,000
-----------------------------------------------------------------------------------------------
2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry London Candies, Inc. )/
(Bank One, Ohio, N.A. LOC) 2,890,000
-----------------------------------------------------------------------------------------------
775,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech Project (OH))/
(KeyBank, N.A. LOC) 775,000
-----------------------------------------------------------------------------------------------
1,355,000 Summit County, OH IDR, Industrial Development Bonds (Series 1996) Weekly VRDNs
(Creative Screen Print Project)/(National City, Northeast LOC) 1,355,000
-----------------------------------------------------------------------------------------------
1,250,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs
(Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) 1,250,000
-----------------------------------------------------------------------------------------------
3,500,000 Summit County, OH, Adjustable Rate Healthcare Facilities Revenue Bonds (Series 1996)
Weekly VRDNs (United Disability Services, Inc.)/(First National Bank of Ohio, Akron LOC) 3,500,000
-----------------------------------------------------------------------------------------------
3,200,000 Toledo, OH, Adjustable Rate City Services Special Assessment Notes (Services 1997)
Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 3,200,000
-----------------------------------------------------------------------------------------------
4,000,000 Toledo-Lucas County, OH Port Authority, Airport Development Revenue Bonds (Series 1996-1)
Weekly VRDNs (Burlington Air Express, Inc.)/(ABN AMRO Bank N.V., Amsterdam LOC) 4,000,000
-----------------------------------------------------------------------------------------------
1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa Corp.)/
(Bayerische Vereinsbank AG, Munich LOC) 1,000,000
-----------------------------------------------------------------------------------------------
2,300,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald Steel Corp.)/
(PNC Bank, N.A. LOC) 2,300,000
-----------------------------------------------------------------------------------------------
1,300,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) Weekly VRDNs
(Churchill Downs, Inc.)/(Bank One, Ohio, N.A. LOC) 1,300,000
-----------------------------------------------------------------------------------------------
1,130,000 Tuscarawas County, OH, Adjustable Rate IDRB's (Series 1995) Weekly VRDNs
(Primary Packaging, Inc.)/(First National Bank of Ohio, Akron LOC) 1,130,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB's (Series 1996) Weekly VRDNs
(Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC) $2,650,000
-----------------------------------------------------------------------------------------------
1,080,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly VRDNs (Pine Ridge
Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,080,000
-----------------------------------------------------------------------------------------------
1,155,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge
Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,155,000
-----------------------------------------------------------------------------------------------
1,200,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/
(National City Bank, Cleveland, OH LOC) 1,200,000
-----------------------------------------------------------------------------------------------
2,120,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/(Huntington National Bank,
Columbus, OH LOC) 2,120,000
-----------------------------------------------------------------------------------------------
3,000,000 Wooster City, OH, Waterworks System Improvement (Series 1996), 4.125% BANs, 11/20/1997 3,000,564
-----------------------------------------------------------------------------------------------
4,170,000 Youngstown, OH, Adjustable Rate Demand IDRB's (Series 1996A) Weekly VRDNs
(Cantar/Polyair Corp./Performa Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) 4,170,000
----------------------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $379,275,148
----------------------------------------------------------------------------------------------- ----------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 49.8% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (unaudited)
First Tier Second Tier
---------- -----------
96.0% 4.0%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $30,220,000 which represents 7.9% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($381,658,739) at October 31, 1997.
AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation
Notes COL -- Collateralized CP -- Commercial Paper EDRB -- Economic Development
Revenue Bonds GNMA -- Government National Mortgage Association GO -- General
Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial
Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial
Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ --
Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors
Assurance PCR -- Pollution Control Revenue TOBs -- Tender Option Bonds VRDNs --
Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $379,275,148
- ----------------------------------------------------------------------------------
Cash 131,655
- ----------------------------------------------------------------------------------
Income receivable 2,842,365
- ----------------------------------------------------------------------------------
Receivable for shares sold 50,094
- ---------------------------------------------------------------------------------- ------------
Total assets 382,299,262
- ----------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable for shares redeemed $97,151
- ------------------------------------------------------------------
Income distribution payable 366,587
- ------------------------------------------------------------------
Accrued expenses 176,785
- ------------------------------------------------------------------ ------------
Total liabilities 640,523
- ---------------------------------------------------------------------------------- ------------
NET ASSETS for 381,658,739 shares outstanding $381,658,739
- ---------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ----------------------------------------------------------------------------------
$80,619,487 (divided by) 80,619,487 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
CASH II SHARES:
- ----------------------------------------------------------------------------------
$245,328,833 (divided by) 245,328,833 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- ----------------------------------------------------------------------------------
$55,710,419 (divided by) 55,710,419 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
OHIO MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest $13,788,155
- -------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $1,448,035
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 273,333
- ----------------------------------------------------------------------------------
Custodian fees 24,975
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 239,112
- ----------------------------------------------------------------------------------
Directors'/Trustees' fees 3,825
- ----------------------------------------------------------------------------------
Auditing fees 13,544
- ----------------------------------------------------------------------------------
Legal fees 9,355
- ----------------------------------------------------------------------------------
Portfolio accounting fees 111,189
- ----------------------------------------------------------------------------------
Distribution services fee -- Cash II Shares 683,505
- ----------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 178,006
- ----------------------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 569,588
- ----------------------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 157,340
- ----------------------------------------------------------------------------------
Share registration costs 42,673
- ----------------------------------------------------------------------------------
Printing and postage 25,947
- ----------------------------------------------------------------------------------
Insurance premiums 5,384
- ----------------------------------------------------------------------------------
Taxes 569
- ----------------------------------------------------------------------------------
Miscellaneous 3,419
- ---------------------------------------------------------------------------------- ------------
Total expenses 3,789,799
- ----------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------
Waiver of investment advisory fee ($846,106)
- ------------------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (113,917)
- ------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (35,601)
- ------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Shares (157,340)
- ------------------------------------------------------------------ ------------
Total waivers (1,152,964)
- ---------------------------------------------------------------------------------- ------------
Net expenses 2,636,835
- ------------------------------------------------------------------------------------------------- ------------
Net investment income $11,151,320
- ------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
OHIO MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS --
- ----------------------------------------------------------------
Net investment income $11,151,320 $8,958,075
- ---------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ----------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------
Institutional Service Shares (2,309,907) (2,339,083)
- ----------------------------------------------------------------
Cash II Shares (6,696,096) (5,962,329)
- ----------------------------------------------------------------
Institutional Shares (2,145,317) (656,663)
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to (11,151,320) (8,958,075)
shareholders
- ---------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS --
- ----------------------------------------------------------------
Proceeds from sale of shares 1,714,819,513 1,408,349,215
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 7,135,525 6,083,711
- ----------------------------------------------------------------
Cost of shares redeemed (1,678,846,130) (1,337,048,550)
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 43,108,908 77,384,376
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets 43,108,908 77,384,376
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 338,549,831 261,165,455
- ---------------------------------------------------------------- --------------- ---------------
End of period $381,658,739 $338,549,831
- ---------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Ohio Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash II Shares and
Institutional Shares. The investment objective of the Fund is current income
exempt from federal regular income tax and the personal income taxes imposed by
the State of Ohio and Ohio municipalities consistent with stability of
principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
- ------------------------------------------------------ -------------------- ----------------
<S> <C> <C>
Cleveland, OH Parking Facilities, PA-182 (Series 1996) 10/10/97 $2,335,000
Ohio HFA, PT-122 8/18/97 2,960,000
Ohio HFA, Single Family Mortgage (Series PT-71) 9/1/97 6,390,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) 4/14/1997-10/17/1997 11,235,000
Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) 9/13/96 3,300,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-5) 7/1/97 4,000,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $381,658,739.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SERVICE SHARES 1997 1996
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 204,340,077 440,264,015
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 477,179 226,623
- --------------------------------------------------------------------------
Shares redeemed (183,918,781) (453,700,715)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Service Share transactions 20,898,475 (13,210,077)
- -------------------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
CASH II SHARES 1997 1996
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 846,566,747 681,930,901
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 6,536,111 5,797,497
- --------------------------------------------------------------------------
Shares redeemed (813,922,799) (669,813,991)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Cash II Share transactions 39,180,059 17,914,407
- -------------------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 663,912,689 286,154,299
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 122,235 59,591
- --------------------------------------------------------------------------
Shares redeemed (681,004,550) (213,533,844)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Share transactions (16,969,626) 72,680,046
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 43,108,908 77,384,376
- -------------------------------------------------------------------------- ------------ ------------
(a) For the period from March 5, 1996 (date of initial public investment) to
October 31, 1996.
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Cash II
Shares. The Plan provides that the Fund may incur distribution expenses up to
0.30% of average daily net assets of Cash II Shares, annually, to compensate
FSC. The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $600,750,000 and $596,189,955,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 67.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(OHIO MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2, 11 and 12 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as
of October 31, 1997, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[GRAPHIC] FEDERATED INVESTORS
OHIO MUNICIPAL
CASH TRUST
(A Portfolio of Federated
Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
OHIO MUNICIPAL
CASH TRUST
INSTITUTIONAL SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Ave.
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Ave.
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedivestors.com
Cusip 314229659
G00211-01-IS (12/97)
[GRAPHIC]
RECYCLED PAPER
OHIO MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Ohio Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Ohio municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Ohio, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
State of Ohio and Ohio municipalities consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights - Institutional Service Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Ohio Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmation and Account Statements 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 10
Federal Income Tax 10
State and Local Taxes 10
Other Classes of Shares 10
Performance Information 11
Financial Highlights - Cash II Shares 12
Financial Highlights - Institutional Shares 13
Financial Statements 14
Report of Independent Public Accountants 29
<TABLE>
<CAPTION>
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.17%
12b-1 Fee None
Total Other Expenses 0.40%
Shareholder Services Fee (after waiver)(2) 0.20%
Total Operating Expenses (after waivers)(3) 0.57%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.85% absent the voluntary
waivers of portions of the management fee and shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 Year $ 6
3 Years $18
5 Years $32
10 Years $71
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.04 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.04) (0.02 (0.02) (0.03) (0.02)
- ------------------------------------------ ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------ ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B) 3.29% 3.27% 3.61% 2.41% 2.33% 3.21% 2.40%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.57% 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%*
- -----------------------------------------
Net investment income 3.25% 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.28% 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period
(000 omitted) $80,619 $59,721 $72,931 $62,499 $81,748 $74,342 $44,771
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Service
Shares, Cash II Shares, and Institutional Shares. This prospectus relates only
to Institutional Service Shares of the Fund, which are designed primarily for
financial institutions acting in a fiduciary or agency capacity as a convenient
means of accumulating an interest in a professionally managed portfolio
investing in short-term Ohio municipal securities. The Fund may not be a
suitable investment for retirement plans or for non-Ohio taxpayers because it
invests in municipal securities of that state. A minimum initial investment of
$25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities consistent with stability of principal. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Ohio
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal
Securities"). Examples of Ohio Municipal Securities include, but are not limited
to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Ohio Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Ohio Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Ohio Municipal
Securities is subject to the federal alternative minimum tax.
OHIO MUNICIPAL SECURITIES
Ohio Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Ohio Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Ohio Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Ohio Municipal Securities depend on a variety of factors, including:
the general conditions of the short-term municipal note market and of the
municipal bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio Municipal Securities and participation interests, or the credit enhancers
of either, to meet their obligations for the payment of interest and principal
when due. In addition, from time to time, the supply of Ohio Municipal
Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Ohio Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Ohio Municipal Securities could involve an increased risk to the Fund should any
of these related projects or facilities experience financial difficulties.
Obligations of issuers of Ohio Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these considerations, the Fund's
concentration in Ohio Municipal Securities may entail a greater level of risk
than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
total assets to secure such borrowings. The Fund will not invest more than 10%
of its net assets in securities subject to restrictions on resale under the
Securities Act of 1933. These investment limitations cannot be changed without
shareholder approval. The following limitation may be changed without
shareholder approval. The Fund will not invest more than 10% of the value of its
net assets in illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for
Institutional Service Shares of the Fund. It is a Pennsylvania
corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
Maximum Average Aggregate
Fee Daily Net Assets
- -------- ---------------------------------
0.15% on the first $250 million
0.13% on the next $250 million
0.10% on the next $250 million
0.08% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$25,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio
Municipal Cash Trust - Institutional Service Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Ohio Municipal Cash Trust - Institutional Service Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
Systematic Investment Program. A minimum of $100 can be automatically withdrawn
from the shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in Fund shares. Shareholders should contact their financial
institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper
form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances arrangements may be made
with the distributor for same-day payment of proceeds, without that day's
dividend for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Parcol & Co., Oaks, Pennsylvania, owned 48.95% of the
voting securities of the Institutional Service Shares of the Fund; Gradison &
Company, Inc., for the exclusive benefit of its customers, Cincinnati, Ohio,
owned 78.38% of the voting securities of the Cash II Shares of the Fund; and
Panabco, Newark, Ohio, owned 29.24% of the voting securites of the Institutional
Shares of the Fund. These companies may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Ohio. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
OHIO TAXES
Under existing Ohio laws, distributions made by the Fund will not be subject to
Ohio individual income taxes to the extent that such distributions qualify as
exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest from obligations of Ohio or its subdivisions which is exempt from
federal income tax; or (ii) interest or dividends from obligations issued by the
United States and its territories or possessions or by any authority, commission
or instrumentality of the United States which are exempt from state income tax
under federal laws. Conversely, to the extent that distributions made by the
Fund are derived from other types of obligations, such distributions will be
subject to Ohio individual income taxes.
Distributions made by the Fund will not be subject to Ohio corporation franchise
tax to the extent that such distributions qualify as exempt-interest dividends
under the Internal Revenue Code, and represent (i) interest from obligations of
Ohio or its subdivisions which is exempt from federal income tax; or (ii) net
interest income from obligations issued by the United States and its territories
or possessions or by any authority, commission or instrumentality of the United
States, which is included in federal taxable income and which is exempt from
state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations held by the
Fund which are issued by Ohio or its political subdivisions will be exempt from
any Ohio municipal income tax (even if the municipality is permitted under Ohio
law to levy a tax on intangible income).
OTHER CLASSES OF SHARES
The Fund also offers two other classes of shares called Cash II Shares and
Institutional Shares. Cash II Shares are sold at net asset value primarily to
retail customers of financial institutions and are subject to a minimum initial
investment of $25,000 over a 90-day period. Institutional Shares are sold at net
asset value primarily to financial institutions acting in a fiduciary or agency
capacity and are also subject to a minimum initial investment of $25,000 over a
90-day period.
All classes are subject to certain of the same expenses.
Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also
are subject to shareholder services fees.
Institutional Shares are distributed with no 12b-1 Plan, but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ----------------------------------------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN(B) 2.98% 2.96% 3.30% 2.10% 2.02% 2.90% 2.27%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.87% 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%*
- -----------------------------------------
Net investment income 2.94% 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.28% 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $245,329 $206,149 $188,234 $156,051 $127,017 $133,877 $94,081
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a)Reflects operations for the period from April 22, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 29.
YEAR ENDED
OCTOBER 31,
-------------------
1997 1996(A)
--------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.02)
- ----------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ----------------------------------------- ------- -------
TOTAL RETURN(B) 3.49% 2.22%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.37% 0.37%*
- -----------------------------------------
Net investment income 3.40% 3.38%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.48% 0.51%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $55,710 $72,680
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 5, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 99.4%
- --------------------------------------------------------------------------------------------------------------
OHIO -- 99.4%
- --------------------------------------------------------------------------------------------------------------
$575,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting Nurses)/
(National City Bank, Cleveland, OH LOC) $575,000
-----------------------------------------------------------------------------------------------
2,480,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, Inc.)/
(National City Bank, Cleveland, OH LOC) 2,480,000
-----------------------------------------------------------------------------------------------
5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. LOC) 5,875,000
-----------------------------------------------------------------------------------------------
1,800,000 Belmont County, OH, Water System Improvement (Series C), 4.16% BANs, 12/15/1997 1,800,665
-----------------------------------------------------------------------------------------------
1,860,000 Canfield, OH Local School District, School Improvement (Series 1997), 4.125% BANs, 10/1/1998 1,863,021
-----------------------------------------------------------------------------------------------
7,000,000 Clermont County, OH , Variable Rate IDRB's (Series 1997) Weekly VRDNs
(Buriot International, Inc.)/(KeyBank, N.A. LOC) 7,000,000
-----------------------------------------------------------------------------------------------
1,255,000 Cleveland Heights, OH, 4.25% BANs, 8/27/1998 1,258,958
-----------------------------------------------------------------------------------------------
2,335,000 (b)Cleveland, OH Parking Facilities, PA-182 (Series 1996) Weekly VRDNs (MBIA INS)/
(Merrill Lynch Capital Services, Inc. LIQ) 2,335,000
-----------------------------------------------------------------------------------------------
1,700,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton Memorial Hospital)/
(National City Bank, Columbus, OH LOC) 1,700,000
-----------------------------------------------------------------------------------------------
1,805,000 Columbiana County, OH, Industrial Development Revenue Bonds Weekly VRDNs
(C & S Land Company Project)/(Bank One, Ohio, N.A. LOC) 1,805,000
-----------------------------------------------------------------------------------------------
1,500,000 Conneaut, OH, Water Treatment Improvement General Limited Tax, 4.50% BANs, 4/14/1998 1,501,611
-----------------------------------------------------------------------------------------------
8,000,000 Cuyahoga County, OH Hospital Authority, (Series 1997 D) Weekly VRDNs (Cleveland Clinic)/
(Bank of America NT and SA, San Francisco LIQ) 8,000,000
-----------------------------------------------------------------------------------------------
600,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League (Cuyahoga County))/
(KeyBank, N.A. LOC) 600,000
-----------------------------------------------------------------------------------------------
1,500,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, Inc.)/(KeyBank, N.A. LOC) 1,500,000
-----------------------------------------------------------------------------------------------
370,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, Inc.)/
(Huntington National Bank, Columbus, OH LOC) 370,000
-----------------------------------------------------------------------------------------------
640,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway West)/
(KeyBank, N.A. LOC) 640,000
-----------------------------------------------------------------------------------------------
950,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing Corp.)/
(National City Bank, Kentucky LOC) 950,000
-----------------------------------------------------------------------------------------------
1,825,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon Precision
Casting Co. Project)/(KeyBank, N.A. LOC) 1,825,000
-----------------------------------------------------------------------------------------------
4,000,000 Dayton, OH, Airport Improvement BAN's (Series 1996), 3.80% BANs, 12/16/1997 4,000,765
-----------------------------------------------------------------------------------------------
1,585,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, Inc. Project)/
(KeyBank, N.A. LOC) 1,585,000
-----------------------------------------------------------------------------------------------
2,000,000 Elyria, OH, Police Station Improvement Notes, (Series 1997), 4.00% BANs, 12/4/1997 2,000,437
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$5,245,000 Erie County, OH, Adjustable Rate Demand Health Care Facilities Bonds (Series 1996A)
Weekly VRDNs (Providence Care Center)/(Fifth Third Bank of Northwestern OH LOC) $5,245,000
-----------------------------------------------------------------------------------------------
1,000,000 Euclid, OH, 4.12% BANs, 7/31/1998 1,001,215
-----------------------------------------------------------------------------------------------
5,395,000 Franklin County, OH Hospital Facility Authority, (Series 1992) Weekly VRDNs
(Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati LOC) 5,395,000
-----------------------------------------------------------------------------------------------
4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC Bank, Ohio, N.A. LOC) 4,500,000
-----------------------------------------------------------------------------------------------
2,940,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/
(Fifth Third Bank, Cincinnati LOC) 2,940,000
-----------------------------------------------------------------------------------------------
3,310,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon L.L.C. Project)/
(Norwest Bank Minnesota, Minneapolis LOC) 3,310,000
-----------------------------------------------------------------------------------------------
4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's (Series 1996A) Weekly VRDNs
(Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) 4,900,000
-----------------------------------------------------------------------------------------------
2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB's (Series 1996B) Weekly VRDNs
(Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) 2,100,000
-----------------------------------------------------------------------------------------------
1,995,000 Franklin County, OH, Adjustable Rate Demand Economic Development Revenue Refunding
Bonds (Series 1996) Weekly VRDNs (CPM Investments)/(Huntington National Bank,
Columbus, OH LOC) 1,995,000
-----------------------------------------------------------------------------------------------
1,395,000 Franklin County, OH, Health Care Facilities Revenue Bonds (Series 1994) Weekly VRDNs
(Wesley Glenn, Inc.)/(Fifth Third Bancorp LOC) 1,395,000
-----------------------------------------------------------------------------------------------
8,035,000 Greene County, OH, (Series 1997F), 4.10% BANs, 9/10/1998 8,051,582
-----------------------------------------------------------------------------------------------
1,635,000 Greene County, OH, Various Purpose Certificates of Indebtedness, 4.00% BANs, 12/11/1997 1,635,589
-----------------------------------------------------------------------------------------------
5,600,000 Hamilton County, OH Health System Weekly VRDNs (West Park Community)/
(Fifth Third Bank, Cincinnati LOC) 5,600,000
-----------------------------------------------------------------------------------------------
7,500,000 Henry County Ohio, Series 1996 Automatic Feed Project Weekly VRDNs
(Huntington National Bank, Columbus, OH LOC) 7,500,000
-----------------------------------------------------------------------------------------------
2,400,000 Highland Heights City, OH, 3.97% BANs, 12/18/1997 2,400,655
-----------------------------------------------------------------------------------------------
1,000,000 Hilliard, OH, (Series 1997-B), 4.15% BANs, 9/10/1998 1,002,470
-----------------------------------------------------------------------------------------------
3,800,000 Hilliard, OH, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs (Medex, Inc.)/
(Bank One, Ohio, N.A. LOC) 3,800,000
-----------------------------------------------------------------------------------------------
2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/
(Rabobank Nederland, Utrecht LOC) 2,000,000
-----------------------------------------------------------------------------------------------
1,430,600 Huber Heights, OH, 4.00% BANs, 1/23/1998 1,431,539
-----------------------------------------------------------------------------------------------
1,160,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, Inc. Project)/
(KeyBank, N.A. LOC) 1,160,000
-----------------------------------------------------------------------------------------------
1,357,000 Huron City, OH, Various Purpose General Ltd Tax, 4.10% BANs, 2/25/1998 1,358,453
-----------------------------------------------------------------------------------------------
1,200,000 Kent, OH, Adjustable Rate IDRB's (Series 1994) Weekly VRDNs (Raven's Metal
Products, Inc. Project)/(First National Bank of Ohio, Akron LOC) 1,200,000
-----------------------------------------------------------------------------------------------
1,000,000 Lake County, OH, 4.00% BANs, 3/12/1998 1,000,861
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$3,300,000 Lake County, OH, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs (Apsco Properties, LTD.)/
(First National Bank of Ohio, Akron LOC) $3,300,000
-----------------------------------------------------------------------------------------------
1,600,000 Lisbon Village School District, OH, GO Unlimited School Improvement , 4.10% BANs, 9/3/1998 1,602,569
-----------------------------------------------------------------------------------------------
2,000,000 Lorain County, OH, Public Improvement GO Ltd. Tax, 4.22% BANs, 9/17/1998 2,004,554
-----------------------------------------------------------------------------------------------
4,190,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer Great Lakes Ltd., Inc.)/
(Bank One, Ohio, N.A. LOC) 4,190,000
-----------------------------------------------------------------------------------------------
1,175,000 Lorain Port Authority, OH, Adjustable Rate Demand Port Development Refunding Revenue
Bonds (Series 1996) Weekly VRDNs (Spitzer Project)/(Bank One, Ohio, N.A. LOC) 1,175,000
-----------------------------------------------------------------------------------------------
8,305,000 Lorain Port Authority, OH, IDRB (Series 1996) Weekly VRDNs (Brush Wellman, Inc.)/
(National City Bank, Cleveland, OH LOC) 8,305,000
-----------------------------------------------------------------------------------------------
800,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. LOC) 800,000
-----------------------------------------------------------------------------------------------
1,645,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds (Series 93) Weekly VRDNs
(Lott Industries, Inc.)/(National City Bank, Cleveland, OH LOC) 1,645,000
-----------------------------------------------------------------------------------------------
245,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs (Sunshine Children's Home)/
(National City Bank, Cleveland, OH LOC) 245,000
-----------------------------------------------------------------------------------------------
3,400,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs (Riverside Hospital, OH)/
(Huntington National Bank, Columbus, OH LOC) 3,400,000
-----------------------------------------------------------------------------------------------
1,585,000 Lucas County, OH, Metropolitan Sewer and Water District Improvement, 4.11%
BANs, 10/21/1998 1,588,397
-----------------------------------------------------------------------------------------------
1,000,000 Lyndhurst, OH, 4.00% BANs, 3/18/1998 1,000,721
-----------------------------------------------------------------------------------------------
5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International Towers, Inc.)/
(PNC Bank, N.A. LOC) 5,325,000
-----------------------------------------------------------------------------------------------
580,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/(Bank One, Ohio, N.A. LOC) 580,000
-----------------------------------------------------------------------------------------------
3,750,000 Mayfield Village, OH IDA Weekly VRDNs (Beta Campus Co.)/(KeyBank, N.A. LOC) 3,750,000
-----------------------------------------------------------------------------------------------
7,400,000 Medina County, OH, (Series 1997) Weekly VRDNs (Plaza 71 Associates Ltd.)/
(Westdeutsche Landesbank Girozentrale LOC) 7,400,000
-----------------------------------------------------------------------------------------------
5,400,000 Medina County, OH, Solid Waste Disposal Revenue Bonds (Series 1995) Weekly VRDNs
(Valley City Steel Company Project)/(KeyBank, N.A. LOC) 5,400,000
-----------------------------------------------------------------------------------------------
1,925,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited Partnership)/
(Huntington National Bank, Columbus, OH LOC) 1,925,000
-----------------------------------------------------------------------------------------------
10,000,000 New Albany, OH Community Authority, Adjustable Rate Multi-Purpose Infrastructure
Improvement Bonds, (Series A) Weekly VRDNs (Huntington National Bank,
Columbus, OH LOC) 10,000,000
-----------------------------------------------------------------------------------------------
320,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, N.A. LOC) 320,000
-----------------------------------------------------------------------------------------------
825,000 North Olmsted, OH IDA, 4.05% TOBs (Therm-All)/(National City Bank, Cleveland, OH LOC),
Optional Tender 2/1/1998 825,000
-----------------------------------------------------------------------------------------------
1,295,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 1,295,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$4,520,000 Ohio HFA, (CR-18), (Series 1988A), 3.80% TOBs (GNMA COL)/(Citibank N.A., New York LIQ),
Optional Tender 2/1/1998 $4,520,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio HFA, (Series 1997 A-2), 3.65% TOBs, Mandatory Tender 3/2/1998 5,000,000
-----------------------------------------------------------------------------------------------
7,040,000 Ohio HFA, 3.90% TOBs (Lincoln Park Associates)/(Bank One, Ohio, N.A. LOC),
Optional Tender 11/1/1997 7,040,000
-----------------------------------------------------------------------------------------------
740,000 Ohio HFA, Multifamily Housing Revenue Bonds, (Series 1997), 4.76% TOBs (Wind River
Apartments)/(Republic National Bank of New York INV), Mandatory Tender 12/1/1997 740,000
-----------------------------------------------------------------------------------------------
2,960,000 (b)Ohio HFA, PT-122, 3.80% TOBs (GNMA COL)/(Banco Santander LIQ),
Mandatory Tender 11/6/1997 2,960,000
-----------------------------------------------------------------------------------------------
6,390,000 (b)Ohio HFA, Single Family Mortgage (Series PT-71), 4.00% TOBs (GNMA COL)/
(Commerzbank AG, Frankfurt LIQ), Mandatory Tender 10/15/1998 6,390,000
-----------------------------------------------------------------------------------------------
11,235,000 (b)Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs (GNMA COL)/
(Bank of New York, New York LIQ) 11,235,000
-----------------------------------------------------------------------------------------------
3,300,000 (b)Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs (GNMA GTD)/
(Bank of New York, New York LIQ) 3,300,000
-----------------------------------------------------------------------------------------------
4,000,000 (b)Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs (GNMA COL)/
(Bank of New York, New York LIQ) 4,000,000
-----------------------------------------------------------------------------------------------
2,270,000 Ohio HFA, VRD Multifamily Housing Revenue Bonds (Series 1997) Weekly VRDNs
(Pine Crossing Ltd. Partnership)/(Sumitomo Bank Ltd., Osaka LOC) 2,270,000
-----------------------------------------------------------------------------------------------
3,800,000 Ohio State Air Quality Development Authority, (Series 1988A) Weekly VRDNs
(PPG Industries, Inc.) 3,800,000
-----------------------------------------------------------------------------------------------
1,725,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs (Notre Dame
College Project)/(National City Bank, Cleveland, OH LOC) 1,725,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State Public Facilities Commission, (Series II-B), 4.50% Bonds, 11/1/1998 5,034,740
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 1989) Weekly VRDNs
(Duquesne Light Power Co.)/(First National Bank of Chicago LOC) 5,000,000
-----------------------------------------------------------------------------------------------
10,000,000 Ohio State Water Development Authority, PCR Refunding Bonds Weekly VRDNs
(General Motors Corp.) 10,000,000
-----------------------------------------------------------------------------------------------
4,000,000 Ohio State Water Development Authority, PCR Bonds (Series 1988), 3.85% CP (Duquesne Light
Power Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/16/1997 4,000,000
-----------------------------------------------------------------------------------------------
3,500,000 Ohio State Water Development Authority, Pollution Control Facilities Revenue Bonds, 4.10%
TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1998 3,500,000
-----------------------------------------------------------------------------------------------
400,000 Ohio State Weekly VRDNs (John Carroll University, OH)/(PNC Bank, N.A. LOC) 400,000
-----------------------------------------------------------------------------------------------
5,000,000 Ohio State, Environmental Improvement Revenue Bonds (Series 1996) Weekly VRDNs
(Newark Group Industries, Inc.)/(Chase Manhattan Bank N.A., New York LOC) 5,000,000
-----------------------------------------------------------------------------------------------
1,125,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, Inc.)/(National City Bank,
Columbus, OH LOC) 1,125,000
-----------------------------------------------------------------------------------------------
1,300,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic Corp.)/(National City Bank,
Columbus, OH LOC) 1,300,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$4,900,000 Oregon City, OH, 4.15% BANs, 12/18/1997 $4,903,041
-----------------------------------------------------------------------------------------------
1,150,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/(National City Bank,
Cleveland, OH LOC) 1,150,000
-----------------------------------------------------------------------------------------------
5,560,000 Ottawa County, OH, 4.15% BANs, 4/7/1998 5,565,747
-----------------------------------------------------------------------------------------------
5,000,000 Ottawa County, OH, Regional Water System Improvement , 4.125% BANs, 8/6/1998 5,009,140
-----------------------------------------------------------------------------------------------
85,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/(Bank One, Ohio, N.A. LOC) 85,000
-----------------------------------------------------------------------------------------------
340,000 Portage County, OH IDA, 3.95% TOBs (Neidlinger)/(KeyBank, N.A. LOC),
Optional Tender 3/1/1998 340,000
-----------------------------------------------------------------------------------------------
4,220,000 Portage County, OH IDA, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs
(Barnette Project)/(National City, Northeast LOC) 4,220,000
-----------------------------------------------------------------------------------------------
800,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs (Lovejoy Industries)/
(Star Bank, N.A., Cincinnati LOC) 800,000
-----------------------------------------------------------------------------------------------
4,375,000 Ross County, OH, Hospital Facilities Revenue Bonds (Series 1995) Weekly VRDNs
(Medical Center Hospital Project)/(Fifth Third Bank, Cincinnati LOC) 4,375,000
-----------------------------------------------------------------------------------------------
3,800,000 Sandusky, OH, (Series 1997-1), 4.125% BANs, 9/17/1998 3,807,829
-----------------------------------------------------------------------------------------------
1,868,000 Sandusky, OH, 4.00% BANs, 11/26/1997 1,868,370
-----------------------------------------------------------------------------------------------
5,200,000 Scioto County, OH Hospital Authority Weekly VRDNs (AMBAC INS)/
(First National Bank of Chicago LIQ) 5,200,000
-----------------------------------------------------------------------------------------------
1,700,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. Francis Home)/
(National City Bank, Cleveland, OH LOC) 1,700,000
-----------------------------------------------------------------------------------------------
400,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third Bank, Cincinnati LOC) 400,000
-----------------------------------------------------------------------------------------------
480,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. LOC) 480,000
-----------------------------------------------------------------------------------------------
2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist Drill Co.)/
(Nationsbank, N.A., Charlotte LOC) 2,000,000
-----------------------------------------------------------------------------------------------
1,250,000 Springfield, OH, 4.17% BANs, 6/18/1998 1,251,655
-----------------------------------------------------------------------------------------------
1,000,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,000,000
-----------------------------------------------------------------------------------------------
2,055,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilkof Morris)/(KeyBank, N.A. LOC) 2,055,000
-----------------------------------------------------------------------------------------------
1,270,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs (Foundations Systems and
Anchors, Inc. Project)/(Bank One, Ohio, N.A. LOC) 1,270,000
-----------------------------------------------------------------------------------------------
1,215,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro Machinery Corp., Project)/
(Huntington National Bank, Columbus, OH LOC) 1,215,000
-----------------------------------------------------------------------------------------------
2,500,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited Partnership)/
(KeyBank, N.A. LOC) 2,500,000
-----------------------------------------------------------------------------------------------
4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London Candies, Inc. )/
(Bank One, Ohio, N.A. LOC) 4,500,000
-----------------------------------------------------------------------------------------------
1,500,000 Summit County, OH IDR, (Series 1997) Weekly VRDNs (Baker McMillen Co.)/
(National City, Northeast LOC) 1,500,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$820,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, Ohio, N.A. LOC),
Optional Tender 2/15/1998 $820,000
-----------------------------------------------------------------------------------------------
325,000 Summit County, OH IDR, 3.95% TOBs (Keltec Industries)/(Bank One, Ohio, N.A. LOC),
Optional Tender 3/1/1998 325,000
-----------------------------------------------------------------------------------------------
1,025,000 Summit County, OH IDR, 3.95% TOBs (Matech Machine Tool Co.)/(Bank One, Ohio, N.A. LOC),
Optional Tender 2/1/1998 1,025,000
-----------------------------------------------------------------------------------------------
1,030,000 Summit County, OH IDR, 3.95% TOBs (Rogers Industrial Products, Inc.)/
(Bank One, Ohio, N.A. LOC), Optional Tender 11/1/1997 1,030,000
-----------------------------------------------------------------------------------------------
725,000 Summit County, OH IDR, 3.95% TOBs (Universal Rack)/(National City Bank, Cleveland, OH LOC),
Optional Tender 3/1/1998 725,000
-----------------------------------------------------------------------------------------------
660,000 Summit County, OH IDR, 4.05% TOBs (Bechmer-Boyce Project)/(KeyBank, N.A. LOC),
Optional Tender 1/15/1998 660,000
-----------------------------------------------------------------------------------------------
1,575,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1996) Weekly VRDNs
(Fomo Products, Inc.)/(First National Bank of Ohio, Akron LOC) 1,575,000
-----------------------------------------------------------------------------------------------
2,000,000 Summit County, OH IDR, Adjustable Rate IDRB's (Series 1997) Weekly VRDNs (Svision)/
(Bank One, Ohio, N.A. LOC) 2,000,000
-----------------------------------------------------------------------------------------------
840,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin Printing Co., Inc.)/
(Bank One, Ohio, N.A. LOC) 840,000
-----------------------------------------------------------------------------------------------
2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry London Candies, Inc. )/
(Bank One, Ohio, N.A. LOC) 2,890,000
-----------------------------------------------------------------------------------------------
775,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech Project (OH))/
(KeyBank, N.A. LOC) 775,000
-----------------------------------------------------------------------------------------------
1,355,000 Summit County, OH IDR, Industrial Development Bonds (Series 1996) Weekly VRDNs
(Creative Screen Print Project)/(National City, Northeast LOC) 1,355,000
-----------------------------------------------------------------------------------------------
1,250,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs
(Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) 1,250,000
-----------------------------------------------------------------------------------------------
3,500,000 Summit County, OH, Adjustable Rate Healthcare Facilities Revenue Bonds (Series 1996)
Weekly VRDNs (United Disability Services, Inc.)/(First National Bank of Ohio, Akron LOC) 3,500,000
-----------------------------------------------------------------------------------------------
3,200,000 Toledo, OH, Adjustable Rate City Services Special Assessment Notes (Services 1997)
Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 3,200,000
-----------------------------------------------------------------------------------------------
4,000,000 Toledo-Lucas County, OH Port Authority, Airport Development Revenue Bonds (Series 1996-1)
Weekly VRDNs (Burlington Air Express, Inc.)/(ABN AMRO Bank N.V., Amsterdam LOC) 4,000,000
-----------------------------------------------------------------------------------------------
1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa Corp.)/
(Bayerische Vereinsbank AG, Munich LOC) 1,000,000
-----------------------------------------------------------------------------------------------
2,300,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald Steel Corp.)/
(PNC Bank, N.A. LOC) 2,300,000
-----------------------------------------------------------------------------------------------
1,300,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) Weekly VRDNs
(Churchill Downs, Inc.)/(Bank One, Ohio, N.A. LOC) 1,300,000
-----------------------------------------------------------------------------------------------
1,130,000 Tuscarawas County, OH, Adjustable Rate IDRB's (Series 1995) Weekly VRDNs
(Primary Packaging, Inc.)/(First National Bank of Ohio, Akron LOC) 1,130,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ------------- ----------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OHIO -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
$2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB's (Series 1996) Weekly VRDNs
(Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC) $2,650,000
-----------------------------------------------------------------------------------------------
1,080,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly VRDNs (Pine Ridge
Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,080,000
-----------------------------------------------------------------------------------------------
1,155,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge
Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,155,000
-----------------------------------------------------------------------------------------------
1,200,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/
(National City Bank, Cleveland, OH LOC) 1,200,000
-----------------------------------------------------------------------------------------------
2,120,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/(Huntington National Bank,
Columbus, OH LOC) 2,120,000
-----------------------------------------------------------------------------------------------
3,000,000 Wooster City, OH, Waterworks System Improvement (Series 1996), 4.125% BANs, 11/20/1997 3,000,564
-----------------------------------------------------------------------------------------------
4,170,000 Youngstown, OH, Adjustable Rate Demand IDRB's (Series 1996A) Weekly VRDNs
(Cantar/Polyair Corp./Performa Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) 4,170,000
----------------------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $379,275,148
----------------------------------------------------------------------------------------------- ----------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 49.8% of
the portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (unaudited)
First Tier Second Tier
---------- -----------
96.0% 4.0%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $30,220,000 which represents 7.9% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net
assets ($381,658,739) at October 31, 1997.
AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation
Notes COL -- Collateralized CP -- Commercial Paper EDRB -- Economic Development
Revenue Bonds GNMA -- Government National Mortgage Association GO -- General
Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial
Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial
Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ --
Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors
Assurance PCR -- Pollution Control Revenue TOBs -- Tender Option Bonds VRDNs --
Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $379,275,148
- ----------------------------------------------------------------------------------
Cash 131,655
- ----------------------------------------------------------------------------------
Income receivable 2,842,365
- ----------------------------------------------------------------------------------
Receivable for shares sold 50,094
- ---------------------------------------------------------------------------------- ------------
Total assets 382,299,262
- ----------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable for shares redeemed $97,151
- ------------------------------------------------------------------
Income distribution payable 366,587
- ------------------------------------------------------------------
Accrued expenses 176,785
- ------------------------------------------------------------------ ------------
Total liabilities 640,523
- ---------------------------------------------------------------------------------- ------------
NET ASSETS for 381,658,739 shares outstanding $381,658,739
- ---------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ----------------------------------------------------------------------------------
$80,619,487 (divided by) 80,619,487 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
CASH II SHARES:
- ----------------------------------------------------------------------------------
$245,328,833 (divided by) 245,328,833 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
INSTITUTIONAL SHARES:
- ----------------------------------------------------------------------------------
$55,710,419 (divided by) 55,710,419 shares outstanding $1.00
- ---------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
OHIO MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest $13,788,155
- -------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $1,448,035
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 273,333
- ----------------------------------------------------------------------------------
Custodian fees 24,975
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 239,112
- ----------------------------------------------------------------------------------
Directors'/Trustees' fees 3,825
- ----------------------------------------------------------------------------------
Auditing fees 13,544
- ----------------------------------------------------------------------------------
Legal fees 9,355
- ----------------------------------------------------------------------------------
Portfolio accounting fees 111,189
- ----------------------------------------------------------------------------------
Distribution services fee -- Cash II Shares 683,505
- ----------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 178,006
- ----------------------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 569,588
- ----------------------------------------------------------------------------------
Shareholder services fee -- Institutional Shares 157,340
- ----------------------------------------------------------------------------------
Share registration costs 42,673
- ----------------------------------------------------------------------------------
Printing and postage 25,947
- ----------------------------------------------------------------------------------
Insurance premiums 5,384
- ----------------------------------------------------------------------------------
Taxes 569
- ----------------------------------------------------------------------------------
Miscellaneous 3,419
- ---------------------------------------------------------------------------------- ------------
Total expenses 3,789,799
- ----------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------
Waiver of investment advisory fee ($846,106)
- ------------------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (113,917)
- ------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (35,601)
- ------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Shares (157,340)
- ------------------------------------------------------------------ ------------
Total waivers (1,152,964)
- ---------------------------------------------------------------------------------- ------------
Net expenses 2,636,835
- ------------------------------------------------------------------------------------------------- ------------
Net investment income $11,151,320
- ------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
OHIO MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS --
- ----------------------------------------------------------------
Net investment income $11,151,320 $8,958,075
- ---------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ----------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------
Institutional Service Shares (2,309,907) (2,339,083)
- ----------------------------------------------------------------
Cash II Shares (6,696,096) (5,962,329)
- ----------------------------------------------------------------
Institutional Shares (2,145,317) (656,663)
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to (11,151,320) (8,958,075)
shareholders
- ---------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS --
- ----------------------------------------------------------------
Proceeds from sale of shares 1,714,819,513 1,408,349,215
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 7,135,525 6,083,711
- ----------------------------------------------------------------
Cost of shares redeemed (1,678,846,130) (1,337,048,550)
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 43,108,908 77,384,376
- ---------------------------------------------------------------- --------------- ---------------
Change in net assets 43,108,908 77,384,376
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 338,549,831 261,165,455
- ---------------------------------------------------------------- --------------- ---------------
End of period $381,658,739 $338,549,831
- ---------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
OHIO MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Ohio Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
three classes of shares: Institutional Service Shares, Cash II Shares and
Institutional Shares. The investment objective of the Fund is current income
exempt from federal regular income tax and the personal income taxes imposed by
the State of Ohio and Ohio municipalities consistent with stability of
principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
- ------------------------------------------------------ -------------------- ----------------
<S> <C> <C>
Cleveland, OH Parking Facilities, PA-182 (Series 1996) 10/10/97 $2,335,000
Ohio HFA, PT-122 8/18/97 2,960,000
Ohio HFA, Single Family Mortgage (Series PT-71) 9/1/97 6,390,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) 4/14/1997-10/17/1997 11,235,000
Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) 9/13/96 3,300,000
Ohio HFA, Trust Receipts (Series 1996 FR/RI-5) 7/1/97 4,000,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $381,658,739.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
INSTITUTIONAL SERVICE SHARES 1997 1996
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 204,340,077 440,264,015
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 477,179 226,623
- --------------------------------------------------------------------------
Shares redeemed (183,918,781) (453,700,715)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Service Share transactions 20,898,475 (13,210,077)
- -------------------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
CASH II SHARES 1997 1996
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 846,566,747 681,930,901
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 6,536,111 5,797,497
- --------------------------------------------------------------------------
Shares redeemed (813,922,799) (669,813,991)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Cash II Share transactions 39,180,059 17,914,407
- -------------------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
- -------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 663,912,689 286,154,299
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 122,235 59,591
- --------------------------------------------------------------------------
Shares redeemed (681,004,550) (213,533,844)
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from Institutional Share transactions (16,969,626) 72,680,046
- -------------------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 43,108,908 77,384,376
- -------------------------------------------------------------------------- ------------ ------------
(a) For the period from March 5, 1996 (date of initial public investment) to
October 31, 1996.
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Cash II
Shares. The Plan provides that the Fund may incur distribution expenses up to
0.30% of average daily net assets of Cash II Shares, annually, to compensate
FSC. The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $600,750,000 and $596,189,955,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 67.4% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.9% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(OHIO MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2, 12 and 13 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ohio
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as
of October 31, 1997, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[GRAPHIC] FEDERATED INVESTORS
OHIO MUNICIPAL
CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
OHIO MUNICIPAL
CASH TRUST
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
Cusip 314229857
G00211-02-SS (12/97)
[GRAPHIC]
OHIO MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
CASH II SHARES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectuses of
Ohio Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust
(the "Trust") dated December 31, 1997. This Statement is not a prospectus. You
may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
OHIO MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Cusip 314229857
1030105B (12/97) [Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment 2
Companies
OHIO INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 10
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
TOTAL RETURN 14
PERFORMANCE COMPARISONS 14
Economic and Market Information 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 15
Institutional Clients 15
Bank Marketing 16
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 16
APPENDIX 17
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories.
See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. The Fund or its custodian will take possession
of the securities subject to repurchase agreements, and these securities will be
marked to market daily. In the event that a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
OHIO INVESTMENT RISKS
The Fund invests in obligations of Ohio (the "State") issuers which result in
the Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a brief
summary of the prevailing economic conditions and general summary of the State's
financial condition. This information is based on official statements relating
to securities that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The Ohio economy is largely composed of manufacturing which is concentrated in
the automobile sector and other durable goods. The exposure to these industries,
particularly the auto sector, leaves the State vulnerable to an economic
slowdown associated with business cycles. The State has diversified its economy
somewhat over the past decade with services and trade composing roughly 50% of
the economy. Unemployment in Ohio over the past two years has been below the
national average, but population growth, as in many great lakes states, has been
stagnant.
The State fully depleted the budget stabilization fund that exceeded $300
million, to achieve balanced budgets as a result of the most recent recession.
The State acted promptly in addressing the fall in revenue with an expansion of
the sales tax and cuts in appropriations. As a result of prudent financial
management, the State restored the budget stabilization fund in fiscal 1993.
Strong performance in fiscal 1994, 1995 and 1996 resulted in reserve levels that
are well above the levels of 1990. Ohio's budget stabilization fund is now above
$828 million.
The overall condition of the State is further demonstrated by its debt ratings.
Ohio, rated Aaa by Moody's Investors Service, Inc. in the 1970's, was downgraded
to Aa in 1979 . Moody's recently revised Ohio's rating upward to Aa1 in
September of 1996. Standard & Poor's Ratings Group first rated the State in 1984
at AA; that rating was also upgraded to AA+ in October of 1996.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for clearance
of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money 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 the value of its total assets
are outstanding. During the period any reverse repurchase agreements are
outstanding, the Fund will restrict the purchase of portfolio securities to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed
or 15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly
or nonpublicly issued Ohio 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 RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited partnership
interests, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets 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 Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for settlement
in more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments , as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund
may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; Partner or Trustee in
private real estate ventures in Southwest Florida; formerly,
President, Naples Property Management, Inc. and Northgate Village
Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director
or Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of
the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Ohio Municipal Cash
Trust: Parcol & Co., Oaks, Pennsylvania, owned approximately 38,818,227 shares
(48.95%); SNBSO & Co., Security National Bank & Trust Co., Springfield, Ohio,
owned approximately 7,966,137 shares (10.04%); Key Trust Co., Cleveland, Ohio,
owned approximately 5,425,000 shares (6.84%); and Kent Sporting Goods, New
London, Ohio, owned approximately 4,368,776 shares (5.51%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Cash II Shares of the Ohio Municipal Cash Trust: Gradison &
Company, Inc., for the exclusive benefit of its customers, Cincinnati, Ohio,
owned approximately 196,195,364 shares (78.38%); and First National Bank of
Ohio, Akron, Ohio, owned
approximately 26,315,230 shares (10.51%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Ohio Municipal Cash Trust:
Panabco, Park National Bank, Newark, Ohio, owned approximately 17,441,788 shares
(29.24%); Mahco #1114263, Mahoning National Bank, Youngstown, Ohio, owned
approximately 9,193,304 shares (15.41%); Holdon, The Ohio Ban, Findlay, Ohio,
owned approximately 7,246,642 shares (12.15%); Saxon & Co., for the benefit of
Gerald J. Robinson, Philadelphia, Pennsylvania, owned approximately 6,697,000
shares (11.23%); Grand Old Co., The First National Bank, Zanesville, Ohio, owned
approximately 3,888,693 shares (6.52%); and Croban, Croghan Colonial Bank,
Fremont, Ohio, owned approximately 3,397,746 shares (5.70%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are
John F. Donahue, his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the Ohio Municipal Cash Trust, the Fund, or
any shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its contract
with the Ohio Municipal Cash Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
October 31, 1997, 1996, and 1995, the adviser earned $1,448,035, $1,183,374,
and $957,142, respectively, of which $846,106, $570,677, and $95,512,
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $273,333, $223,680,
and $181,139, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type, and
number of accounts and transactions
made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Cash II Shares, the Fund has adopted a Distribution Plan
pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940. Additionally, the
Fund has adopted a Shareholder Services Agreement with respect to Institutional
Service Shares, Cash II Shares, and Institutional Shares.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to: marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Plan, the Trustees expect that the Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund 's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, payments in the amount of $683,505
were made pursuant to the Plan for Cash II Shares, of which $569,588 was paid to
financial institutions. In addition, for the fiscal year ended October 31, 1997,
the Fund paid shareholder service fees in the amount of $178,006, $569,588, and
$157,340, respectively for Institutional Service Shares, Cash II Shares, and
Institutional Shares, of which $142,405, $569,588, and $0, respectively, were
paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yield for Institutional
Service Shares, Cash II Shares, and Institutional Shares
was 3.38%, 3.08%, and 3.58%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yield for
Institutional Service Shares, Cash II Shares, and Institutional Shares was
3.43%, 3.13%, and 3.64%, respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 46.604% tax rate (the maximum combined
effective federal and state rates for individuals) and assuming that the income
is 100% tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yield for
Institutional Service Shares, Cash II Shares, and Institutional Shares was
6.33%, 5.77%, and 6.70%, respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF OHIO
FEDERAL TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.162% 32.857% 37.444% 43.004% 46.604%
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.23% 2.40% 2.63% 2.81%
2.00% 2.47% 2.98% 3.20% 3.51% 3.75%
2.50% 3.09% 3.72% 4.00% 4.39% 4.68%
3.00% 3.71% 4.47% 4.80% 5.26% 5.62%
3.50% 4.33% 5.21% 5.59% 6.14% 6.55%
4.00% 4.95% 5.96% 6.39% 7.02% 7.49%
4.50% 5.57% 6.70% 7.19% 7.90% 8.43%
5.00% 6.19% 7.45% 7.99% 8.77% 9.36%
5.50% 6.80% 8.19% 8.79% 9.65% 10.30%
6.00% 7.42% 8.94% 9.59% 10.53% 11.24%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF OHIO
FEDERAL TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.857% 34.444% 37.344% 43.004% 46.604%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.87% 2.29% 2.40% 2.63% 2.81%
2.00% 2.50% 3.05% 3.20% 3.51% 3.75%
2.50% 3.12% 3.81% 4.00% 4.39% 4.68%
3.00% 3.74% 4.58% 4.80% 5.26% 5.62%
3.50% 4.37% 5.34% 5.59% 6.14% 6.55%
4.00% 4.99% 6.10% 6.39% 7.02% 7.49%
4.50% 5.61% 6.86% 7.19% 7.90% 8.43%
5.00% 6.24% 7.63% 7.99% 8.77% 9.36%
5.50% 6.86% 8.39% 8.79% 9.65% 10.30%
6.00% 7.49% 9.15% 9.59% 10.53% 11.24%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The charts above are for illustrative purposes only. They are not indicators of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year and five-year period ended October 31, 1997, and for the period
from April 22, 1991 (date of initial public investment) through October 31,
1997, the average annual total returns were 3.29%, 2.98%, and 3.15%,
respectively, for Institutional Service Shares, and were 2.98%, 2.67%, and
2.84%, respectively, for Cash II Shares.
For the one-year period ended October 31, 1997, and for the period from March 5,
1996 (date of initial public investment) through October 31, 1997, the average
annual total returns were 3.49% and 3.46%, respectively, for Institutional
Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making -- structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime and 21 municipal with
assets approximating $28.0 billion, $12.8 billion and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute.
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION
RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus sign (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 - This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA - Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODYS INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION
RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 - This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 - This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 - Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 - Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term romissory 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, 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.
VIRGINIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Virginia Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term Virginia municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of Virginia, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the income tax imposed by the Commonwealth
of Virginia consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December
31, 1997 TABLE OF CONTENTS <TABLE> <S> <C>
Summary of Fund Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Virginia Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Confirmations and Account Statements 9
Accounts with LowBalances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Service Shares 11
Financial Statements 12
Report of Independent Public Accountants 22
</TABLE>
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
INSTITUTIONAL SHARES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.29%
12b-1 Fee None
Total Other Expenses 0.20%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.49%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.85% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 Year $ 5
3 Years $16
5 Years $27
10 Years $62
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.04 0.03 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.04) (0.03) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.31% 3.24% 3.56% 2.57% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.49% 0.49% 0.33% 0.09%*
Net investment income 3.26% 3.19% 3.50% 2.56% 2.68%*
Expense waiver/reimbursement(c) 0.36% 0.40% 0.42% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,382 $26,302 $22,642 $20,360 $7,210
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for financial institutions
acting in a fiduciary capacity as a convenient means of accumulating an interest
in a professionally managed portfolio investing in short-term Virginia municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Virginia taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal. This investment objective cannot be
changed without shareholder approval. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Virginia state income tax or
at least 80% of its net assets will be invested in obligations, the interest
income from which is exempt from federal regular and Virginia state income tax.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Virginia and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and the income tax imposed
by the Commonwealth of Virginia ("Virginia Municipal Securities"). Examples of
Virginia Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable
or floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause
the securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on
a published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand notes
as maturing on the later of the date of the next interest rate adjustment or
the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Virginia Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income
from the investment as exempt from federal income tax. The Fund invests in
these participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the
underlying Virginia Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation interest in any of the above. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets. INVESTING IN
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Virginia
Municipal Securities is subject to the federal alternative minimum tax.
VIRGINIA MUNICIPAL SECURITIES
Virginia Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Virginia Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Virginia Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Virginia Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Virginia Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Virginia
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Virginia Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Virginia Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Virginia Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected.
Due to these risk considerations, the Fund's concentration in Virginia Municipal
Securities may entail a greater level of risk than other types of money market
funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
its total assets to secure such borrowings. These investment limitations cannot
be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive
a portion of its fee or reimburse other expenses of the Fund, but reserves
the right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting) shares
of Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife,
and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee
of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number
of investment companies. With over $110 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates. ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90-days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers. PURCHASING SHARES BY WIRE Shares may be
purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern
time) to place an order. The order is considered received immediately. Payment
by federal funds must be received before 3:00 p.m. (Eastern time) in order to
begin earning dividends that same day. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: Virginia Municipal Cash
Trust--Institutional Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement. PURCHASING SHARES BY
CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Virginia Municipal Cash Trust--Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement. Telephone instructions may be recorded
and if reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the outstanding shares of the Trust. As of November 24, 1997, Warrtrust &
Company, Warrenton, Virginia, owned 30.80% of the voting securities of the Fund,
and, therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Virginia. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
VIRGINIA TAXES
Under existing Virginia laws, distributions made by the Fund will not be subject
to Virginia income taxes to the extent that such distributions qualify as
exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest 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. OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
financial institutions acting in an agency capacity and are subject to a minimum
initial investment of $25,000 over a 90-day period. Both classes are subject to
certain of the same expenses. Institutional Service Shares are distributed with
no 12b-1 Plan but are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.17% 3.14% 3.46% 2.44% 0.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.63% 0.59% 0.59% 0.40% 0.19%*
Net investment income 3.12% 3.10% 3.38% 2.42% 2.67%*
Expense waiver/reimbursement(c) 0.23% 0.30% 0.32% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $198,838 $177,575 $127,083 $100,084 $45,648
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
VIRGINIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--98.9%
VIRGINIA--96.4%
$ 5,722,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/(Sanwa $ 5,722,000
Bank Ltd., Osaka LOC)
3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series 3,500,000
1996B Weekly VRDNs (Buckingham Village Apartments)/(First
Union National Bank, Charlotte, NC LOC)
2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers 2,200,000
Waste System)/(Morgan Guaranty Trust Co., New York LOC)
2,500,000 Bedford County, VA IDA, (Series 1996) Weekly VRDNs (Nekoosa 2,500,000
Packaging Corporation Project)/(Canadian Imperial Bank of
Commerce, Toronto LOC)
1,500,000 Bedford County, VA IDA, (Series 1997) Weekly VRDNs (Nekoosa 1,500,000
Packaging Corporation Project)/(Canadian Imperial Bank of
Commerce, Toronto LOC)
4,700,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs 4,700,000
(Emkay Holdings, L.L.C. Project)/ (State Street Bank and
Trust Co. LOC)
11,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities 11,000,000
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial
Bank of Japan Ltd., Tokyo LOC)
5,350,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs 5,350,000
(Kentucky Derby Hosiery Co., Inc. Project)/(Bank One,
Kentucky LOC)
1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility Revenue 1,000,000
Bonds (Series 1996) Weekly VRDNs (Chambers Development of
Virginia, Inc. Project)/(Morgan Guaranty Trust Co., New York
LOC)
1,650,000 Charlottesville, VA IDA, IDR Refunding Bonds, 3.90% TOBs
1,650,000 (Safeway, Inc.)/(Bankers Trust Co., New York
LOC), Mandatory Tender 12/1/1997
2,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo 2,900,000
AB)/(Union Bank of Switzerland, Zurich LOC)
5,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo 5,000,000
Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka
LOC)
4,100,000 Chesterfield County, VA IDA, 3.80% CP (Virginia Electric 4,100,000
Power Co.), Mandatory Tender 11/12/1997
5,800,000 Danville, VA IDA, (Series 1997) Weekly VRDNs (Diebold, 5,800,000
Inc.)/(Bank One, Ohio, N.A. LOC)
904,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs 904,000
(Tindall Concrete VA, Inc.)/ (First Union National Bank,
Charlotte, NC LOC)
5,298,975 Equity Trust III, (1996 Series) Weekly VRDNs (Bayerische 5,298,975
Hypotheken-Und Wechsel-Bank Ag LOC)
6,900,000 Fairfax County, VA IDA, (Series 1993B), 3.70% CP (Inova 6,900,000
Health System), Mandatory Tender 1/20/1998
4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.75% CP (Inova 4,000,000
Health System), Mandatory Tender 2/19/1998
2,000,000 Fairfax County, VA, (Series A), 6.50% Bonds (United States 2,061,456
Treasury PRF), 4/1/1998 (@102)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 6,100,000 Falls Church, VA IDA, (Series 1985), 3.80% TOBs (Kaiser $ 6,100,000
Permanente Medical Care Program), Optional Tender 11/1/1997
600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly VRDNs 600,000
(Warrenton Development Co.)/(Nationsbank, N.A., Charlotte
LOC)
7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs 7,113,000
(Thomasville Furniture Industries)/ (Union Bank of
Switzerland, Zurich LOC)
3,000,000 Frederick County, VA IDA, (Series 1997) Weekly VRDNs
(Jouan, 3,000,000 Inc.)/(Central Fidelity Bank, Richmond
LOC)
1,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) 1,500,000
Weekly VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of
America Illinois LOC)
835,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs 835,000
(Robertshaw Controls Company Project)/(Nationsbank, N.A.,
Charlotte LOC)
7,500,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric
Power 7,500,000 Co.), Mandatory Tender 11/18/1997
3,000,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric
Power 3,000,000 Co.), Mandatory Tender 12/12/1997
1,700,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc. 1,700,000
Project)/(Nationsbank, N.A., Charlotte LOC)
6,700,000 James City County, VA IDA, (Series 1997) Weekly VRDNs 6,700,000
(Riverside Health System-Patriots Colony)
3,200,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Harden 3,200,000
Manufacturing Corp.)/(Columbus Bank and Trust Co., GA LOC)
3,000,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Smith Land 3,000,000
Holdings, L.L.C.)/(Columbus Bank and Trust Co., GA LOC)
15,000,000 Metropolitan Washington, DC Airports Authority, 4.00% CP 15,000,000
(Nationsbank, N.A., Charlotte LOC), Mandatory Tender
11/17/1997
4,295,000 Newport News, VA IDA, (Series 1997) Weekly VRDNs (Iceland 4,295,000
Seafood Corp.)/(Crestar Bank of Virginia, Richmond LOC)
6,715,000 Newport News, VA Redevelopment & Housing Authority,
(PA-152) 6,715,000 Weekly VRDNs (Indian Lakes
Apartments)/(Merrill Lynch Capital Services, Inc.
LIQ)/(Merrill Lynch Capital Services, Inc.
LOC)
1,000,000 Norfolk, VA, 4.50% Bonds, 2/1/1998 1,002,201
1,285,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh 1,285,000
Real Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank One,
Ohio, N.A. LOC)
1,000,000 Richmond, VA IDA, (Series 1997) Weekly VRDNs (PM Beef)/(U.S. 1,000,000
Bank, N.A., Minneapolis LOC)
820,000 Richmond, VA IDA, Industrial Development Revenue Refunding 820,000
Bonds (Series 1987-B), 3.80% TOBs (Crow-Klein-Macfarlane
Project)/(First Union National Bank of Virginia LOC),
Optional Tender 11/15/1997
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-3) $ 1,500,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6) 555,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
2,500,000 Staunton, VA IDA, (Series 1997) Weekly VRDNs (Diebold, 2,500,000
Inc.)/(Bank One, Ohio, N.A. LOC)
2,285,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville 2,285,000
Properties Bluefield)/ (Huntington National Bank, Columbus,
OH LOC)
2,030,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean 2,030,000
Ranch Motel Corp.)/ (Nationsbank, N.A., Charlotte LOC)
1,200,000 Virginia Beach, VA, UT GO, 5.125% Bonds, 2/1/1998 1,204,170
6,335,000 Virginia Peninsula Port Authority, Coal Terminal Revenue 6,335,000
Refunding Bonds (Series 1987A), 3.75% CP (Dominion Terminal
Associates)/(National Westminster Bank, PLC, London LOC),
Mandatory Tender 11/20/1997
6,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding 6,500,000
Bonds (Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova
Scotia, Toronto LOC), Mandatory Tender 11/19/1997
3,150,000 Virginia Peninsula Port Authority, Facility Revenue Refunding 3,150,000
Bonds (Series 1992), 3.85% CP (CSX Corp.)/(Bank of Nova
Scotia, Toronto LOC), Mandatory Tender 11/18/1997
4,944,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly 4,944,000
VRDNs (Eeco Project)/ (Nationsbank, N.A., Charlotte LOC)
9,920,000 Virginia Port Authority, Merlots (Series 1997M) Weekly
VRDNs 9,920,000 (MBIA INS)/(Corestates Bank N.A.,
Philadelphia, PA LIQ)
4,700,000 Virginia Small Business Financing Authority Weekly VRDNs 4,700,000
(Moses Lake Industries)/ (KeyBank, N.A. LOC)
2,500,000 Virginia State Housing Development Authority, (Series G-1), 2,528,436
5.70% TOBs, Mandatory Tender 7/1/1998
4,000,000 Virginia State Public School Authority, (Series B), 5.00% 4,034,533
Bonds, 8/1/1998
1,000,000 Virginia State Public School Authority, (Series C), 5.00% 1,008,718
Bonds, 8/1/1998
1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial
1,507,000 Williamsburg Foundation Museum)/(Nationsbank,
N.A., Charlotte LOC)
1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco 1,575,000
Filter Resources, Inc. Project)/ (Harris Trust & Savings
Bank, Chicago LOC)
3,400,000 Winchester, VA IDA, Hospital Refunding Revenue Bonds, 4.30% 3,403,852
Bonds (Winchester Medical Center, Inc.)/(AMBAC INS), 1/1/1998
5,000,000 York County, VA IDA, (Series 1985), 3.80% CP (Virginia 5,000,000
Electric Power Co.), Mandatory Tender 11/12/1997
TOTAL 215,132,341
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--2.5%
$ 3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series $ 3,500,000
1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC), Optional Tender 9/1/1998
2,065,000 Puerto Rico Municipal Finance Agency, Revenue Bonds, Series 2,073,401
B, 4.50% Bonds, 7/1/1998
TOTAL 5,573,401
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 220,705,742
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 59.3% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based On Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($223,220,239) at October 31, 1997.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities AMBAC --American Municipal
Bond Assurance Corporation CP --Commercial Paper GO --General Obligation IDA
- --Industrial Development Authority IDR --Industrial Development Revenue IDRB
- --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement
LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance MMMs --Money
Market Municipals PCA --Pollution Control Authority PCR --Pollution Control
Revenue PLC --Public Limited Company PRF --Prerefunded TOBs --Tender Option
Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes (See Notes which are
an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
VIRGINIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at amortized cost and value $ 220,705,742
Cash 1,060,017
Income receivable 1,430,489
Receivable for shares sold 270,773
Deferred organizational costs 11,164
Deferred expenses 8,777
Total assets 223,486,962
LIABILITIES:
Payable for shares redeemed $ 54,093
Income distribution payable 155,372
Accrued expenses 57,258
Total liabilities 266,723
Net Assets for 223,220,239 shares outstanding $ 223,220,239
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$24,382,210 / 24,382,210 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$198,838,029 / 198,838,029 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
VIRGINIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,258,769
EXPENSES:
Investment advisory fee $ 881,787
Administrative personnel and services fee 166,299
Custodian fees 19,388
Transfer and dividend disbursing agent fees and expenses 102,037
Directors'/Trustees' fees 1,864
Auditing fees 13,044
Legal fees 7,832
Portfolio accounting fees 70,926
Shareholder services fee--Institutional Shares 56,180
Shareholder services fee--Institutional Service Shares 494,971
Share registration costs 35,909
Printing and postage 20,058
Insurance premiums 3,113
Miscellaneous 13,896
Total expenses 1,887,304
Waivers--
Waiver of investment advisory fee $ (246,296)
Waiver of shareholder services fee--Institutional Shares (56,180)
Waiver of shareholder services fee--Institutional (229,092)
Service Shares
Total waivers (531,568)
Net expenses 1,355,736
Net investment income $ 6,903,033
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,903,033 $ 5,112,556
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (732,930) (761,548)
Institutional Service Shares (6,170,103) (4,351,008)
Change in net assets resulting from distributions to (6,903,033) (5,112,556)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,311,030,791 1,246,683,348
Net asset value of shares issued to shareholders in payment 4,912,775 3,397,142
of distributions declared
Cost of shares redeemed (1,296,599,777) (1,195,928,451)
Change in net assets resulting from share transactions 19,343,789 54,152,039
Change in net assets 19,343,789 54,152,039
NET ASSETS:
Beginning of period 203,876,450 149,724,411
End of period $ 223,220,239 $ 203,876,450
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
VIRGINIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Virginia Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value)
for each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
Shares sold 75,151,387 113,430,564
Shares issued to shareholders in
payment of distributions declared 13,520 6,598
Shares redeemed (77,084,630) (109,777,058)
Net change resulting from Institutional
Share transactions (1,919,723) 3,660,104
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
<S> <C> <C>
Shares sold 1,235,879,404 1,133,252,784
Shares issued to shareholders in
payment of distributions declared 4,899,255 3,390,544
Shares redeemed (1,219,515,147) (1,086,151,393)
Net change resulting from
Institutional Service Share transactions 21,263,512 50,491,935
Net change resulting from share transactions 19,343,789 54,152,039
</TABLE>
At October 31, 1997, capital paid-in aggregated $223,220,239.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $33,493 were borne initially by the Adviser. The
Fund has reimbursed the Adviser for these expenses. These expenses have been
deferred and are being amortized over the five-year period following the
Fund's effective date. For the year ended October 31, 1997, the Fund
expensed $8,932 of organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $503,937,583 and $529,570,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 74.1% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 12.1% of total investments. REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL
TRUST (VIRGINIA MUNICIPAL CASH TRUST): We have audited the accompanying
statement of assets and liabilities of Virginia Municipal Cash Trust (an
investment portfolio of Federated Municipal Trust, a Massachusetts business
trust), including the schedule of portfolio investments, as of October 31, 1997,
the related statement of operations for the year then ended, the statement of
changes in net assets and the financial highlights (see pages 2 and 11 of the
prospectus) for the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Virginia Municipal Cash Trust as of October 31, 1997, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
VIRGINIA MUNICIPAL CASH TRUST
INSTITUTIONAL 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
[Graphic]
VIRGINIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229816
3080501A-IS (12/97)
[Graphic]
Virginia Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Virginia Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Virginia municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Virginia, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the income tax imposed by the Commonwealth
of Virginia consistent with stability of principal. THE SHARES OFFERED BY THIS
PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR
GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS
IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December
31, 1997 TABLE OF CONTENTS <TABLE> <S> <C>
Summary of Fund Expenses 1 Financial Highlights--Institutional Service Shares 2
General Information 3 Investment Information 3 Investment Objective 3
Investment Policies 3 Virginia Municipal Securities 5 Investment Risks 5
Investment Limitations 5 Fund Information 6 Management of the Fund 6
Distribution of Institutional Service Shares 6 Administration of the Fund 7 Net
Asset Value 7 How to Purchase Shares 7 Purchasing Shares Through a Financial
Institution 7 Purchasing Shares by Wire 7 Purchasing Shares by Check 8 Special
Purchase Features 8 How to Redeem Shares 8 Redeeming Shares Through a Financial
Institution 8 Redeeming Shares by Telephone 8 Redeeming Shares by Mail 8
Special Redemption Features 9 Account and Share Information 9 Dividends 9
Capital Gains 9 Confirmations and Account Statements 9 Accounts with
LowBalances 9 Voting Rights 9 Tax Information 10 Federal Income Tax 10 State
and Local Taxes 10 Other Classes of Shares 10 Performance Information 11
Financial Highlights--Institutional Shares 12 Financial Statements 13 Report of
Independent Public Accountants 23
</TABLE>
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
INSTITUTIONAL SERVICE SHARES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.29%
12b-1 Fee None
Total Other Expenses 0.34%
Shareholder Services Fee (after waiver)(2) 0.13%
Total Operating Expenses(3) 0.63%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.86% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 Year $ 6
3 Years $20
5 Years $35
10 Years $79
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.17% 3.14% 3.46% 2.44% 0.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.63% 0.59% 0.59% 0.40% 0.19%*
Net investment income 3.12% 3.10% 3.38% 2.42% 2.67%*
Expense waiver/reimbursement(c) 0.23% 0.30% 0.32% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $198,838 $177,575 $127,083 $100,084 $45,648
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for financial
institutions acting in an agency capacity as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term
Virginia municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Virginia taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 over a 90-day
period is required. The Fund attempts to stabilize the value of a share at
$1.00. Shares are currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal. This investment objective cannot be
changed without shareholder approval. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Virginia state income tax or
at least 80% of its net assets will be invested in obligations, the interest
income from which is exempt from federal regular and Virginia state income tax.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective. ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Virginia and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and the income tax imposed
by the Commonwealth of Virginia ("Virginia Municipal Securities"). Examples of
Virginia Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable
or floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause
the securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand notes
as maturing on the later of the date of the next interest rate adjustment or
the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Virginia Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the
underlying Virginia Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation interest in any of the above. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets. INVESTING IN
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Virginia
Municipal Securities is subject to the federal alternative minimum tax.
VIRGINIA MUNICIPAL SECURITIES
Virginia Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Virginia Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Virginia Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Virginia Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Virginia Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Virginia
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Virginia Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Virginia Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Virginia Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected.
Due to these risk considerations, the Fund's concentration in Virginia Municipal
Securities may entail a greater level of risk than other types of money market
funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
its total assets to secure such borrowings. These investment limitations cannot
be changed without shareholder approval. FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting) shares
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors. Federated Management and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. With over $110 billion invested
across more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates. ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers. In connection with any sale,
Federated Securities Corp. may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request. An account must be established at a financial institution or
by completing, signing, and returning the new account form available from the
Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL
INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve Wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Virginia
Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to Virginia Municipal Cash Trust--Institutional
Service Shares. Please include an account number on the check. Orders by mail
are considered received when payment by check is converted into federal funds
(normally the business day after the check is received), and shares begin
earning dividends the next day. SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service. REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares by Mail" should be considered. If at any time the
Fund determines it necessary to terminate or modify the telephone redemption
privilege, shareholders will be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances. Trustees may be removed by the
Trustees or by shareholders at a special meeting. A special meeting shall be
called by the Trustees upon the written request of shareholders owning at least
10% of the outstanding shares of the Trust. TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Virginia. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
VIRGINIA TAXES
Under existing Virginia laws, distributions made by the Fund will not be subject
to Virginia income taxes to the extent that such distributions qualify as
exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest 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. OTHER CLASSES OF SHARES The Fund also offers another class of
shares called Institutional Shares. Institutional Shares are sold at net asset
value primarily to financial institutions acting in a fiduciary capacity and are
subject to a minimum initial investment of $25,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.04 0.03 0.003
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.04) (0.03) (0.003)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.31% 3.24% 3.56% 2.57% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.49% 0.49% 0.33% 0.09%*
Net investment income 3.26% 3.19% 3.50% 2.56% 2.68%*
Expense waiver/reimbursement(c) 0.36% 0.40% 0.42% 0.37% 1.04%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,382 $26,302 $22,642 $20,360 $7,210
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 16, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
VIRGINIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--98.9%
VIRGINIA--96.4%
$ 5,722,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/(Sanwa $ 5,722,000
Bank Ltd., Osaka LOC)
3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series 3,500,000
1996B Weekly VRDNs (Buckingham Village Apartments)/(First
Union National Bank, Charlotte, NC LOC)
2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers 2,200,000
Waste System)/(Morgan Guaranty Trust Co., New York LOC)
2,500,000 Bedford County, VA IDA, (Series 1996) Weekly VRDNs (Nekoosa 2,500,000
Packaging Corporation Project)/(Canadian Imperial Bank of
Commerce, Toronto LOC)
1,500,000 Bedford County, VA IDA, (Series 1997) Weekly VRDNs (Nekoosa 1,500,000
Packaging Corporation Project)/(Canadian Imperial Bank of
Commerce, Toronto LOC)
4,700,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs 4,700,000
(Emkay Holdings, L.L.C. Project)/ (State Street Bank and
Trust Co. LOC)
11,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities 11,000,000
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial
Bank of Japan Ltd., Tokyo LOC)
5,350,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs 5,350,000
(Kentucky Derby Hosiery Co., Inc. Project)/(Bank One,
Kentucky LOC)
1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility Revenue 1,000,000
Bonds (Series 1996) Weekly VRDNs (Chambers Development of
Virginia, Inc. Project)/(Morgan Guaranty Trust Co., New York
LOC)
1,650,000 Charlottesville, VA IDA, IDR Refunding Bonds, 3.90% TOBs
1,650,000 (Safeway, Inc.)/(Bankers Trust Co., New York
LOC), Mandatory Tender 12/1/1997
2,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo 2,900,000
AB)/(Union Bank of Switzerland, Zurich LOC)
5,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo 5,000,000
Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka
LOC)
4,100,000 Chesterfield County, VA IDA, 3.80% CP (Virginia Electric 4,100,000
Power Co.), Mandatory Tender 11/12/1997
5,800,000 Danville, VA IDA, (Series 1997) Weekly VRDNs (Diebold, 5,800,000
Inc.)/(Bank One, Ohio, N.A. LOC)
904,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs 904,000
(Tindall Concrete VA, Inc.)/ (First Union National Bank,
Charlotte, NC LOC)
5,298,975 Equity Trust III, (1996 Series) Weekly VRDNs (Bayerische 5,298,975
Hypotheken-Und Wechsel-Bank Ag LOC)
6,900,000 Fairfax County, VA IDA, (Series 1993B), 3.70% CP (Inova 6,900,000
Health System), Mandatory Tender 1/20/1998
4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.75% CP (Inova 4,000,000
Health System), Mandatory Tender 2/19/1998
2,000,000 Fairfax County, VA, (Series A), 6.50% Bonds (United States 2,061,456
Treasury PRF), 4/1/1998 (@102)
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 6,100,000 Falls Church, VA IDA, (Series 1985), 3.80% TOBs (Kaiser $ 6,100,000
Permanente Medical Care Program), Optional Tender 11/1/1997
600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly VRDNs 600,000
(Warrenton Development Co.)/(Nationsbank, N.A., Charlotte
LOC)
7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs 7,113,000
(Thomasville Furniture Industries)/ (Union Bank of
Switzerland, Zurich LOC)
3,000,000 Frederick County, VA IDA, (Series 1997) Weekly VRDNs
(Jouan, 3,000,000 Inc.)/(Central Fidelity Bank, Richmond
LOC)
1,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) 1,500,000
Weekly VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of
America Illinois LOC)
835,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs 835,000
(Robertshaw Controls Company Project)/(Nationsbank, N.A.,
Charlotte LOC)
7,500,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric
Power 7,500,000 Co.), Mandatory Tender 11/18/1997
3,000,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric
Power 3,000,000 Co.), Mandatory Tender 12/12/1997
1,700,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc. 1,700,000
Project)/(Nationsbank, N.A., Charlotte LOC)
6,700,000 James City County, VA IDA, (Series 1997) Weekly VRDNs 6,700,000
(Riverside Health System-Patriots Colony)
3,200,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Harden 3,200,000
Manufacturing Corp.)/(Columbus Bank and Trust Co., GA LOC)
3,000,000 Mecklenburg County, VA IDA, IDRB Weekly VRDNs (Smith Land 3,000,000
Holdings, L.L.C.)/(Columbus Bank and Trust Co., GA LOC)
15,000,000 Metropolitan Washington, DC Airports Authority, 4.00% CP 15,000,000
(Nationsbank, N.A., Charlotte LOC), Mandatory Tender
11/17/1997
4,295,000 Newport News, VA IDA, (Series 1997) Weekly VRDNs (Iceland 4,295,000
Seafood Corp.)/(Crestar Bank of Virginia, Richmond LOC)
6,715,000 Newport News, VA Redevelopment & Housing Authority,
(PA-152) 6,715,000 Weekly VRDNs (Indian Lakes
Apartments)/(Merrill Lynch Capital Services, Inc.
LIQ)/(Merrill Lynch Capital Services, Inc.
LOC)
1,000,000 Norfolk, VA, 4.50% Bonds, 2/1/1998 1,002,201
1,285,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh 1,285,000
Real Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank One,
Ohio, N.A. LOC)
1,000,000 Richmond, VA IDA, (Series 1997) Weekly VRDNs (PM Beef)/(U.S. 1,000,000
Bank, N.A., Minneapolis LOC)
820,000 Richmond, VA IDA, Industrial Development Revenue Refunding 820,000
Bonds (Series 1987-B), 3.80% TOBs (Crow-Klein-Macfarlane
Project)/(First Union National Bank of Virginia LOC),
Optional Tender 11/15/1997
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
VIRGINIA--CONTINUED
$ 1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-3) $ 1,500,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6) 555,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
2,500,000 Staunton, VA IDA, (Series 1997) Weekly VRDNs (Diebold, 2,500,000
Inc.)/(Bank One, Ohio, N.A. LOC)
2,285,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville 2,285,000
Properties Bluefield)/ (Huntington National Bank, Columbus,
OH LOC)
2,030,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean 2,030,000
Ranch Motel Corp.)/ (Nationsbank, N.A., Charlotte LOC)
1,200,000 Virginia Beach, VA, UT GO, 5.125% Bonds, 2/1/1998 1,204,170
6,335,000 Virginia Peninsula Port Authority, Coal Terminal Revenue 6,335,000
Refunding Bonds (Series 1987A), 3.75% CP (Dominion Terminal
Associates)/(National Westminster Bank, PLC, London LOC),
Mandatory Tender 11/20/1997
6,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding 6,500,000
Bonds (Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova
Scotia, Toronto LOC), Mandatory Tender 11/19/1997
3,150,000 Virginia Peninsula Port Authority, Facility Revenue Refunding 3,150,000
Bonds (Series 1992), 3.85% CP (CSX Corp.)/(Bank of Nova
Scotia, Toronto LOC), Mandatory Tender 11/18/1997
4,944,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly 4,944,000
VRDNs (Eeco Project)/ (Nationsbank, N.A., Charlotte LOC)
9,920,000 Virginia Port Authority, Merlots (Series 1997M) Weekly
VRDNs 9,920,000 (MBIA INS)/(Corestates Bank N.A.,
Philadelphia, PA LIQ)
4,700,000 Virginia Small Business Financing Authority Weekly VRDNs 4,700,000
(Moses Lake Industries)/ (KeyBank, N.A. LOC)
2,500,000 Virginia State Housing Development Authority, (Series G-1), 2,528,436
5.70% TOBs, Mandatory Tender 7/1/1998
4,000,000 Virginia State Public School Authority, (Series B), 5.00% 4,034,533
Bonds, 8/1/1998
1,000,000 Virginia State Public School Authority, (Series C), 5.00% 1,008,718
Bonds, 8/1/1998
1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial
1,507,000 Williamsburg Foundation Museum)/(Nationsbank,
N.A., Charlotte LOC)
1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco 1,575,000
Filter Resources, Inc. Project)/ (Harris Trust & Savings
Bank, Chicago LOC)
3,400,000 Winchester, VA IDA, Hospital Refunding Revenue Bonds, 4.30% 3,403,852
Bonds (Winchester Medical Center, Inc.)/(AMBAC INS), 1/1/1998
5,000,000 York County, VA IDA, (Series 1985), 3.80% CP (Virginia 5,000,000
Electric Power Co.), Mandatory Tender 11/12/1997
TOTAL 215,132,341
</TABLE>
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--2.5%
$ 3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series $ 3,500,000
1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V.,
Amsterdam LOC), Optional Tender 9/1/1998
2,065,000 Puerto Rico Municipal Finance Agency, Revenue Bonds, Series 2,073,401
B, 4.50% Bonds, 7/1/1998
TOTAL 5,573,401
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 220,705,742
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 59.3% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based On Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($223,220,239) at October 31, 1997.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities AMBAC --American Municipal
Bond Assurance Corporation CP --Commercial Paper GO --General Obligation IDA
- --Industrial Development Authority IDR --Industrial Development Revenue IDRB
- --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement
LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance MMMs --Money
Market Municipals PCA --Pollution Control Authority PCR --Pollution Control
Revenue PLC --Public Limited Company PRF --Prerefunded TOBs --Tender Option
Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes (See Notes which are
an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
VIRGINIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at amortized cost and value $ 220,705,742
Cash 1,060,017
Income receivable 1,430,489
Receivable for shares sold 270,773
Deferred organizational costs 11,164
Deferred expenses 8,777
Total assets 223,486,962
LIABILITIES:
Payable for shares redeemed $ 54,093
Income distribution payable 155,372
Accrued expenses 57,258
Total liabilities 266,723
Net Assets for 223,220,239 shares outstanding $ 223,220,239
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$24,382,210 / 24,382,210 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$198,838,029 / 198,838,029 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
VIRGINIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,258,769
EXPENSES:
Investment advisory fee $ 881,787
Administrative personnel and services fee 166,299
Custodian fees 19,388
Transfer and dividend disbursing agent fees and expenses 102,037
Directors'/Trustees' fees 1,864
Auditing fees 13,044
Legal fees 7,832
Portfolio accounting fees 70,926
Shareholder services fee--Institutional Shares 56,180
Shareholder services fee--Institutional Service Shares 494,971
Share registration costs 35,909
Printing and postage 20,058
Insurance premiums 3,113
Miscellaneous 13,896
Total expenses 1,887,304
Waivers--
Waiver of investment advisory fee $ (246,296)
Waiver of shareholder services fee--Institutional Shares (56,180)
Waiver of shareholder services fee--Institutional (229,092)
Service Shares
Total waivers (531,568)
Net expenses 1,355,736
Net investment income $ 6,903,033
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
VIRGINIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,903,033 $ 5,112,556
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (732,930) (761,548)
Institutional Service Shares (6,170,103) (4,351,008)
Change in net assets resulting from distributions to (6,903,033) (5,112,556)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,311,030,791 1,246,683,348
Net asset value of shares issued to shareholders in payment 4,912,775 3,397,142
of distributions declared
Cost of shares redeemed (1,296,599,777) (1,195,928,451)
Change in net assets resulting from share transactions 19,343,789 54,152,039
Change in net assets 19,343,789 54,152,039
NET ASSETS:
Beginning of period 203,876,450 149,724,411
End of period $ 223,220,239 $ 203,876,450
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
VIRGINIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Virginia Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the Commonwealth of Virginia
consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value)
for each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
Shares sold 75,151,387 113,430,564
Shares issued to 13,520 6,598
shareholders in
payment of
distributions declared
Shares redeemed (77,084,630) (109,777,058)
Net change resulting (1,919,723) 3,660,104
from Institutional Share transactions
<CAPTION>
Year Ended October 31,
INSTITUTIONAL SERVICE 1997 1996
<S> <C> <C>
SHARES
Shares sold 1,235,879,404 1,133,252,784
Shares issued to 4,899,255 3,390,544
shareholders in
payment of
distributions declared
Shares redeemed (1,219,515,147) (1,086,151,393)
Net change resulting 21,263,512 50,491,935
from Institutional Service Share
transactions
Net change resulting 19,343,789 54,152,039
from share transactions
</TABLE>
At October 31, 1997, capital paid-in aggregated $223,220,239.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $33,493 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $8,932 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $503,937,583 and $529,570,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 74.1% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 12.1% of total investments. REPORT OF INDEPENDENT
ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (VIRGINIA
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Virginia
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets and the financial highlights (see
pages 2 and 12 of the prospectus) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Virginia Municipal Cash Trust as of October 31, 1997, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania
December 2, 1997
NOTES
[Graphic]Federated Investors
Virginia Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
VIRGINIA MUNICIPAL CASH TRUST
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229824
3080501A-SS (12/97)
[Graphic]
VIRGINIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus(es)
of Virginia Municipal Cash Trust (the "Fund"), a portfolio of Federated
Municipal Trust (the "Trust") dated December 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.
VIRGINIA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
www.federatedinvestors.com
Cusip 314229816
Cusip 314229824
3080501B (12/97)
[Graphic]
TABLE OF CONTENTS
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
Virginia Investment Risks 2
Investment Limitations 3
Selling Short and Buying on Margin 3
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Underwriting 3
Concentration of Investments 3
Investing in Illiquid Securities 3
Investing for Control 4
Investing in Options 4
Regulatory Compliance 4
Federated Municipal Trust Management 4
Share Ownership 7
Trustee Compensation 8
Trustee Liability 8
Investment Advisory Services 9
Investment Adviser 9
Advisory Fees 9
Brokerage Transactions 9
Other Services 9
Fund Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 10
Independent Public Accountants 10
Shareholder Services 10
Determining Net Asset Value 10
Redemption in Kind 10
Massachusetts Partnership Law 11
The Fund's Tax Status 11
Performance Information 11
Yield 11
Effective Yield 11
Tax-Equivalent Yield 11
Tax-Equivalency Table 12
Total Return 12
Performance Comparisons 13
Economic and Market Information 13
About Federated Investors 13
Mutual Fund Market 14
Institutional Clients 14
BankMarketing 14
Broker/Dealer and Bank Broker/Dealer Subsidiaries 14
Appendix 15
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also
enter into reverse repurchase agreements. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, the Fund transfers possession
of a portfolio instrument in return for a percentage of the instrument's market
value in cash and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed-upon rate. The use of reverse repurchase agreements may
enable the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment for the
securities to be purchased, are: segregated on the Fund's records at the trade
date; marked to market daily; and maintained until the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
VIRGINIA INVESTMENT RISKS
The Fund invests in obligations of Commonwealth of Virginia (Virginia" or the
"Commonwealth") issuers which results in the Fund's performance being subject to
risks associated with the overall conditions present within the Commonwealth.
The following information is a brief summary of the recent prevailing economic
conditions and a general summary of the Commonwealth's financial status. This
information is based on official statements related to securities that have been
offered by Virginia issuers and from other sources believed to be reliable but
should not be relied upon as a complete description of all relevant information.
The Commonwealth's credit strength is derived from a diversified economy, above
average wealth levels, low unemployment rates, conservative financial
management, and a low debt burden. Virginia benefits from its proximity to the
nations capital and its employment base remains substantially tied to government
and defense-related industries. Although defense cutbacks and base closings have
left Virginia relatively unscathed in recent years, the potential for future
closings and cutbacks remains alive; consequently, Virginia's legislators have
been budgeting conservative growth in the future and have implemented spending
restraints. To counter the contracting defense/government related declines, the
Commonwealth is actively seeking economic diversification, focusing particularly
on high technology, trade, and tourism. Virginia's pro-business environment has
attracted many high technology firms. Virginia remains a conservative debt
issuer and maintains debt levels that are low in relation to its substantial
resources. The Commonwealth actively manages its debt position and continually
demonstrates its ability and willingness to adjust financial planning and
budgeting to preserve financial balance. The Fund's concentration in securities
issued by the Commonwealth and its political subdivisions provides a greater
level of risk than a fund which is diversified across numerous states and
municipal entities. The ability of the Commonwealth or its municipalities to
meet their obligations will depend on the availability of tax and other
revenues; economic, political, and demographic conditions within the
Commonwealth; and the underlying fiscal condition of the Commonwealth and its
municipalities. INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for the clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the value of
its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
nonpublicly issued Virginia municipal securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, limitations and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items (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
Trustees without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees, and repurchase agreements
providing for settlement in more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its ability to participate in volume transactions will be to the
benefit of the Fund.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center--Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc. SHARE
OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of Virginia Municipal Cash Trust:
Warrtrust & Company, Warrenton, Virginia, owned approximately 13,130,190 shares
(30.80%); Old Dominion Trust Company, Norfolk, Virginia, owned approximately
7,815,457 shares (18.33%); Comfort & Company, Hampton, Virginia, owned
approximately 6,341,949 shares (14.88%); VATCO, Richmond, Virginia, owned
approximately 3,547,704 shares (8.32%); Hamac & Company, Richmond, Virginia,
owned approximately 2,434,454 shares (5.71%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of Virginia Municipal Cash
Trust: Scott & Stringfellow, Inc., Richmond, Virginia, owned approximately
33,826,895 shares (15.73%); First Union National Bank, Charlotte, North
Carolina, owned approximately 16,627,439 shares (7.73%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $881,787, $657,332, and $514,947,
respectively, of which $246,296, $243,090, and $224,073, respectively, were
waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the
purchase and sale of portfolio instruments, the adviser looks for prompt
execution of the order at a favorable price. In working with dealers, the
adviser will generally use those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
During the fiscal years ended October 31, 1997, 1996, and 1995, the Fund paid no
brokerage commissions. Although investment decisions for the Fund are made
independently from those of the other accounts managed by the adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the adviser
are prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. In other cases, however, it is believed
that coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $166,299, $155,000,
and $155,000, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will benefit
by: (1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts. For the fiscal year ended
October 31, 1997, the Fund earned shareholder service fees in the amount of
$56,180 and $494,971, on behalf of Institutional Shares and Institutional
Service Shares, respectively, of which $0 and $265,879, respectively, was paid
to financial institutions. DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true. The
Fund's use of the amortized cost method of valuing portfolio instruments depends
on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated
by the Securities and Exchange Commission under the Investment Company Act of
1940. Under the Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.05% between the two values. The Trustees will take any
steps they consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining net
asset value. REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. For the seven-day period ended October 31, 1997, the yields for
Institutional Shares and Institutional Service Shares were 3.35% and 3.20%,
respectively. EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result. For the seven-day period ended October
31, 1997, the effective yields for Institutional Shares and Institutional
Service Shares were 3.41% and 3.26%, respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 45.35% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt. For the seven-day period ended October 31, 1997, the tax-equivalent
yields for Institutional Shares and Institutional Service Shares were 6.13% and
5.86%, respectively. TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF VIRGINIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.75% 33.75% 36.75% 41.75% 45.35%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
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.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions. For the one-year period
ended October 31, 1997, and for the period from September 16, 1993 (date of
initial public investment) through October 31, 1997, the average annual total
returns were 3.31% and 3.16%, respectively, for Institutional Shares, and were
3.17% and 3.04%, respectively, for Institutional Service Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
(Y) LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income dividends
and capital gains distributions, if any.
(Y) 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.
(Y) MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the money market sector, Federated Investors gained
prominence in the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered the use
of the amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money market
fund. As of December 31, 1996, Federated Investors managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime and 21 municipal with assets approximating $28.0 billion, $12.8 billion
and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios. 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 $3.5 trillion to the more than 6,000 funds available.* Federated Investors,
through its subsidiaries, distributes mutual funds for a variety of investment
applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division. BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp. * Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Alabama Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
PROSPECTUS
The shares of Alabama Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Alabama municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Alabama, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and income tax imposed by the State of Alabama consistent
with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights 2 General Information 3
Investment Information 3 Investment Objective 3 Investment Policies 3 Alabama
Municipal Securities 5 Investment Risks 5 Investment Limitations 5 Fund
Information 6 Management of the Fund 6 Distribution of Shares 6 Administration
of the Fund 7 Net Asset Value 7 How to Purchase Shares 7 Purchasing Shares
Through a Financial Institution 7 Purchasing Shares by Wire 7 Purchasing Shares
by Check 8 Special Purchase Features 8 How to Redeem Shares 8 Redeeming Shares
Through a Financial Institution 8 Redeeming Shares by Telephone 8 Redeeming
Shares by Mail 8 Special Redemption Features 9 Account and Share Information 9
Dividends 9 Capital Gains 9 Confirmations and Account Statements 9 Accounts
with Low Balances 9 Voting Rights 9 Tax Information 9 Federal Income Tax 9
State and Local Taxes 10 Performance Information 10 Financial Statements 11
Report of Independent Public Accountants 23
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption proceeds, as applicable)
None Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None <CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.19%
12b-1 Fee None
Total Other Expenses 0.40%
Shareholder Services Fee(2) 0.24%
Total Operating Expenses(3) 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during fiscal year ending October 31, 1998. The total operating
expenses were 0.55% for fiscal year ended October 31, 1997 and would have been
0.91% absent the voluntary waivers of portions of the management fee and the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Trust will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Fund Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 6
3 Years $19
5 Years $33
10 Years $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.04 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.26% 3.22% 3.66% 2.31%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.48% 0.36%*
Net investment income 3.21% 3.18% 3.59% 2.67%*
Expense waiver/reimbursement(c) 0.36% 0.37% 0.44% 0.62%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $223,647 $233,720 $209,490 $142,804
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 3, 1993 (date of initial
public investment) to October 31, 1994. For the period from November 29, 1993
(start of business) to December 3,1993 the Fund had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Alabama municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Alabama taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the State of Alabama consistent
with stability of principal. This investment objective cannot be changed without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by complying with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds and by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Alabama state income tax.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Alabama
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the income tax imposed by
the State of Alabama ("Alabama Municipal Securities"). Examples of Alabama
Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Alabama Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Alabama Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Alabama
Municipal Securities is subject to the federal alternative minimum tax.
ALABAMA MUNICIPAL SECURITIES
Alabama Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Alabama Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Alabama Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Alabama Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Alabama Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Alabama
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Alabama Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Alabama Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Alabama Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Alabama Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its net assets and pledge assets not exceeding 15% of
the value of its total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time, and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Alabama
Municipal Cash Trust; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to Alabama Municipal Cash Trust. Please include an account number on the check.
Orders by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights; except that in
matters affecting only a particular portfolio, only shareholders of that
portfolio are entitled to vote. The Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Alabama. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
ALABAMA TAXES
Under existing Alabama laws, distributions made by the Fund will not be subject
to Alabama personal income taxes to the extent that such distributions are
attributable to interest earned on obligations that would be exempt from Alabama
personal income taxes if held directly by shareholders (such as obligations of
Alabama or its political subdivisions, of the United States or of certain
territories or possessions of the United States). Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will be subject to Alabama personal income taxes.
Shareholders may exclude from the share value of the Fund, for purposes of the
Alabama personal property tax, that portion of the total share value which is
attributable to the value of the obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
ALABAMA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.5%
ALABAMA--93.2%
$ 9,995,000 (b)Alabama HFA, Variable Rate Certificates (Series 1997J) $ 9,995,000
Weekly VRDNs (Bank of America NT and SA, San Francisco LIQ)
1,000,000 Alabama State Corrections Institution Finance Authority, (1993 1,000,952
Series A), 4.20% Bonds (MBIA INS), 4/1/1998
1,540,000 Alabama State IDA Weekly VRDNs (Sunshine Homes Inc.)/ (Amsouth 1,540,000
Bank N.A., Birmingham LOC)
7,725,000 Alabama State IDA, IDRB (Series 1994) Weekly VRDNs (Decatur 7,725,000
Aluminum Corp.)/ (Star Bank, N.A., Cincinnati LOC)
1,400,000 Alabama State IDA, IDRB Weekly VRDNs (Monarch Tile, Inc. 1,400,000
Project)/ (Nationsbank of Texas, N.A. LOC)
3,250,000 Alabama State IDA, IDRB's (Series 1996) Weekly VRDNs (IMI Cash 3,250,000
Valve Project)/ (Regions Bank, Alabama LOC)
1,000,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag 1,000,000
Corporation, Ltd.)/ (SouthTrust Bank of Alabama, Birmingham
LOC)
1,000,000 Alabama State Public School & College Authority, 3.90% Bonds, 1,000,217
12/1/1997
5,000,000 Alabama State, UT GO Refunding Bonds, 5.70% Bonds, 9/1/1998
5,076,602 3,650,000 Arab, AL IDB, (Series 1989) Weekly VRDNs (SCI
Manufacturing, 3,650,000
Inc.)/ (Bank of Tokyo-Mitsubishi Ltd. LOC)
1,100,000 Arab, AL IDB, Revenue Refunding Bonds (Series 1989) Weekly
1,100,000 VRDNs (SCI Manufacturing, Inc.)/(Bank of
Tokyo-Mitsubishi Ltd.
LOC)
1,660,000 Ashland, AL IDB, (Series 1996) Weekly VRDNs (Tru-Wood 1,660,000
Cabinets)/ (Regions Bank, Alabama LOC)
1,155,000 Auburn University, AL, 6.60% Bonds, 6/1/1998 1,169,052
2,000,000 Birmingham, AL IDA Weekly VRDNs (Altec Industries, Inc.)/ 2,000,000
(Wachovia Bank of Georgia N.A., Atlanta LOC)
1,615,000 Birmingham, AL IDA Weekly VRDNs (Glasforms, Inc.)/(Regions 1,615,000
Bank, Alabama LOC)
4,500,000 Birmingham, AL IDA, (Series 1997) Weekly VRDNs (Millcraft,
AL 4,500,000 Inc.)/ (Regions Bank, Alabama LOC)
3,000,000 Birmingham, AL IDA, IDRB's (Series 1997) Weekly VRDNs (J. J. & 3,000,000
W, IV, Ltd.)/ (Svenska Handelsbanken, Inc. LOC)
4,745,000 Birmingham, AL IDA, Revenue Bonds (Series 1989) Weekly VRDNs 4,745,000
(O'Neal Steel, Inc.)/ (SouthTrust Bank of Alabama, Birmingham
LOC)
2,500,000 Birmingham, AL IDA, Revenue Bonds (Series 1996) Weekly VRDNs 2,500,000
(American FireLog Corp.)/ (Comerica Bank, Detroit, MI LOC)
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
ALABAMA--CONTINUED
$ 3,095,000 Birmingham, AL Special Care Facilities Financing Authority, $ 3,095,000
Capital Improvement Revenue Bonds (Series 1995) Weekly VRDNs
(Methodist Home for the Aging (AL))/ (SouthTrust Bank of
Alabama, Birmingham LOC)
1,230,000 Calhoun County, AL Economic Development Council Weekly VRDNs 1,230,000
(Food Ingredients Tech. Co.)/(Nationsbank, N.A., Charlotte
LOC)
4,140,000 Chatom, AL, (National Rural Utilities Series 1984M), 3.65%
4,140,000 TOBs (Alabama Electric Co-op, Inc.)/(National
Rural Utilities Cooperative Finance Corp. GTD), Optional
Tender 2/15/1998
2,000,000 Chatom, AL, IDB PCR, 3.75% CP (Alabama Electric Co-op, 2,000,000
Inc.)/(National Rural Utilities Cooperative Finance Corp.
GTD), Mandatory Tender 11/3/1997
2,185,000 (b)Columbia, AL IDB, CDC Municipal Products, Inc. (Series 2,185,000
1997I) Weekly VRDNs (Alabama Power Co.)/(AMBAC INS)/(CDC
Municipal Products, Inc. LIQ)
1,900,000 Cullman, AL IDB, IRB's (Series 1992) Weekly VRDNs (Pressac 1,900,000
Holdings PLC)/ (NBD Bank, Michigan LOC)
1,100,000 Cullman, AL IDB, Series 1989 Weekly VRDNs (Pressac Inc)/(NBD 1,100,000
Bank, Michigan LOC)
2,900,000 Cullman, AL IDB, Variable Fixed Rate IDRB Weekly VRDNs 2,900,000
(National Bedding Company)/ (Bank of America Illinois LOC)
910,000 Decatur, AL IDB, General Obligation Warrants (Series 1997), 913,577
4.50% Bonds (MBIA INS), 6/1/1998
3,000,000 Decatur, AL IDB, Revenue Refunding Bonds (Series 1993) Weekly 3,000,000
VRDNs (Allied-Signal, Inc.)
2,000,000 Decatur, AL IDB, Solid Waste Disposal Revenue Bonds (Series 2,000,000
1996) Weekly VRDNs (Trico Steel Company, L.L.C.
Project)/(Chase Manhattan Bank N.A., New York LOC)
5,700,000 Decatur, AL IDB, Solid Waste Disposal Revenue Bonds (Series 5,700,000
1997) Weekly VRDNs (Trico Steel Company, L.L.C.
Project)/(Chase Manhattan Bank N.A., New York LOC)
1,800,000 Dothan, AL IDB, Adjustable/Fixed Rate IRBs (Series 1997) 1,800,000
Weekly VRDNs (Henderson Steel Erectors)/(Regions Financial
Corp. LOC)
6,175,000 Fairfield, AL IDA, Variable Rate Environmental Improvement 6,175,000
Revenue Bonds (Series 1995), 3.75% TOBs (USX Corp.)/(Wachovia
Bank of NC, N.A., Winston-Salem LOC), Optional Tender
1/15/1998
1,390,000 Fort Payne, AL IDB, IDRB Weekly VRDNs (Ovalstrapping, Inc.)/ 1,390,000
(U.S. Bank, N.A., Minneapolis LOC)
5,300,000 Geneva County, AL IDB, Adjustable Fixed Rate IDRB's (Series 5,300,000
1996) Weekly VRDNs (Brooks AG Co., Inc.)/(Regions Bank,
Alabama LOC)
4,000,000 Guntersville, AL IDB, (Series 1995) Weekly VRDNs (Hercules 4,000,000
Rubber Co. Project)/ (SouthTrust Bank of Alabama, Birmingham
LOC)
3,405,000 Hamilton, AL IDB, Variable/Fixed Rate IDRB's Weekly VRDNs 3,405,000
(Tennessee River, Inc.)/ (SouthTrust Bank of Alabama,
Birmingham LOC)
3,415,000 Hoover, AL IDA Weekly VRDNs (Bud's Best Cookies, 3,415,000
Inc.)/(SouthTrust Bank of Alabama, Birmingham LOC)
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
ALABAMA--CONTINUED
$ 2,500,000 Huntsville, AL IDA Weekly VRDNs (Giles and Kendall, $ 2,500,000
Inc.)/(SouthTrust Bank of Alabama, Birmingham LOC)
330,000 Huntsville, AL IDA Weekly VRDNs (Parkway Project (Huntsville, 330,000
AL))/ (Regions Bank, Alabama LOC)
1,910,000 Huntsville, AL, Warrants (Series A), 4.75% Bonds, 11/1/1997 1,910,000
6,200,000 Huntsville, AL, Warrants, (Series 1995A), 5.25% Bonds, 6,223,412
2/1/1998
1,395,000 Ider, AL IDB, Industrial Development Bonds Weekly VRDNs 1,395,000
(Galbreath, Inc. Proj.)/ (National Bank of Canada, Montreal
LOC)
3,545,000 Jefferson County, AL, Capital Appreciation Warrants Bonds 3,491,935
(MBIA INS), 4/1/1998
1,500,000 Jefferson County, AL, GO Warrants (Series 1996) Weekly VRDNs 1,500,000
(Bayerische Landesbank Girozentrale LOC)
1,500,000 Jefferson County, AL, Sewer Revenue Warrants, 7.00% Bonds, 1,538,104
9/1/1998
1,900,000 Livingston, AL IDB, Floating/Fixed Rate IDRB's (Series
1989) 1,900,000 Weekly VRDNs (Toin Corporation
U.S.A.)/(Industrial Bank of Japan Ltd., Tokyo LOC)
3,500,000 Lowndes County, AL IDB, (Series 1996) Weekly VRDNs (Warren Oil 3,500,000
Company Project)/ (First Union National Bank, Charlotte, NC
LOC)
1,000,000 Mobile, AL Board of Water and Sewer Commissioners, Refunding 1,008,610
(Series A), 9.00% Bonds (United States Treasury PRF), 1/1/1998
(@100)
2,485,000 Mobile, AL Downtown Redevelopment Authority, (Series 1992) 2,485,000
Weekly VRDNs (Mitchell Project)/(SunTrust Bank, Atlanta LOC)
3,000,000 Mobile, AL IDB, (1994 Series A), 4.00% TOBs (International 3,000,000
Paper Co.), Optional Tender 12/1/1997
3,755,000 Mobile, AL Water & Sewer Commissioners, Water & Sewer
Revenue 3,756,794 Bonds (Series 1995), 4.10% Bonds (FGIC
INS), 1/1/1998
470,000 Mobile, AL, GO Warrants, 4.75% Bonds, 8/15/1998 472,468
3,000,000 Montgomery - Wynlakes Governmental Utility Services Corp., 3,000,000
Bonds (Series 1995-A) Weekly VRDNs (Vaughn Road, L.L.C.,
Project)/(Amsouth Bank N.A., Birmingham LOC)
1,000,000 Montgomery, AL BMC Special Care Facilities Finance Authority, 1,000,000
(Series 94A) Weekly VRDNs (Baptist Medical Center,
AL)/(Amsouth Bank N.A., Birmingham LOC)
2,565,000 Montgomery, AL IDB, (Series 1990-A) Weekly VRDNs
(Industrial 2,565,000 Partners)/ (Wachovia Bank of Georgia
N.A., Atlanta LOC)
3,500,000 Montgomery, AL IDB, (Series 1997) Weekly VRDNs (KINPAK INC. 3,500,000
Project)/ (First Union National Bank of Florida LOC)
3,000,000 Montgomery, AL IDB, IDRB's (Series 1996) Weekly VRDNs (CSC 3,000,000
Fabrication, Inc. Project)/ (First Union National Bank,
Charlotte, NC LOC)
3,650,000 Montgomery, AL IDB, Industrial Development Revenue Bonds 3,650,000
(Series 1996A) Weekly VRDNs (Jobs Company, L.L.C.
Project)/(Columbus Bank and Trust Co., GA LOC)
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
ALABAMA--CONTINUED
$ 2,000,000 Phoenix City, AL IDB, (Series 1988), 3.75% CP (Mead Coated $ 2,000,000
Board)/ (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender
2/10/1998
5,500,000 Phoenix City, AL IDB, (Series 1988), 3.80% CP (Mead Coated 5,500,000
Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender
1/28/1998
2,900,000 Phoenix City, AL IDB, (Series 1988), 3.80% CP (Mead Coated 2,900,000
Board)/(ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender
2/25/1998
850,000 Piedmont, AL IDB Weekly VRDNs (Industrial Partners)/
(Wachovia 850,000 Bank of Georgia N.A., Atlanta LOC)
3,500,000 Prattville, AL IDB, IDR Bonds Weekly VRDNs (Kuhnash 3,500,000
Properties/Arkay Plastics Project)/ (PNC Bank, Ohio, N.A. LOC)
3,150,000 Scottsboro, AL IDB, (Series 1994) Weekly VRDNs (Maples 3,150,000
Industries, Inc.)/ (Amsouth Bank N.A., Birmingham LOC)
1,250,000 Scottsboro, AL IDB, IDRB (Series 1991) Weekly VRDNs (Maples 1,250,000
Industries, Inc.)/ (Amsouth Bank N.A., Birmingham LOC)
5,000,000 Selma, AL IDB, Annual Tender PCR Refunding Bonds (1993 Series 5,000,000
B), 4.10% TOBs (International Paper Co.), Optional Tender
7/15/1998
3,575,000 St. Clair County, AL IDB, (Series 1993) Weekly VRDNs (Ebsco 3,575,000
Industries, Inc.)/ (National Australia Bank, Ltd., Melbourne
LOC)
1,100,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995B) 1,100,000
Weekly VRDNs (Canal Chip Project)/(Regions Bank, Alabama LOC)
2,500,000 Troy, AL IDB, (Series 1997A) Weekly VRDNs (Hudson Cos.)/ 2,500,000
(Amsouth Bank N.A., Birmingham LOC)
5,000,000 Tuscaloosa County, AL IDA, 1995 Series A Weekly VRDNs 5,000,000
(Tuscaloosa Steel Corporation)/ (Bayerische Landesbank
Girozentrale LOC)
2,000,000 Tuskegee, AL IDB, IDRB (Series 1995) Weekly VRDNs (Concrete 2,000,000
Company (The))/ (Columbus Bank and Trust Co., GA LOC)
1,185,000 University of South Alabama, University Tuition Revenue 1,185,000
Refunding Bonds (Series 1996B), 3.80% Bonds (MBIA INS),
11/15/1997
2,245,000 Vincent, AL IDB, (Series 1993) Weekly VRDNs (Ebsco Industries, 2,245,000
Inc.)/ (National Australia Bank, Ltd., Melbourne LOC)
1,400,000 Winfield, AL, Variable/Fixed Rate Industrial Revenue Bonds 1,400,000
(Series 1984) Weekly VRDNs (Union Underwear Company,
Inc.)/(Bank of Nova Scotia, Toronto LOC)
TOTAL 208,456,723
PUERTO RICO--6.3%
3,500,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 3,500,000
Tender 12/11/1997
1,000,000 Puerto Rico Industrial, Medical & Environmental PCA,
(Series 1,000,000 1983A), 3.80% TOBs (Reynolds Metals
Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender
9/1/1998
</TABLE>
ALABAMA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--CONTINUED
$ 3,000,000 Puerto Rico Industrial, Medical & Environmental PCA, Pollution $ 3,000,363
Control Facilities Financing Authority (Series 1983A), 3.75%
TOBs (Schering Plough Corp.)/(Morgan Guaranty Trust Co., New
York LOC), Optional Tender 12/1/1997
6,600,000 Puerto Rico Industrial, Tourist, Education, Medical & 6,600,000
Environmental Control Finance Authority, (Series 1994A), 3.85%
CP (Inter American University of Puerto Rico)/(Banque Paribas,
Paris LOC), Mandatory Tender 12/11/1997
TOTAL 14,100,363
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 222,557,086
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 63.5% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are considered
rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
96.41% 3.59%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$12,180,000 which represents 5.46% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($223,647,211) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation CP --Commercial Paper FGIC
- --Financial Guaranty Insurance Company GO --General Obligation GTD --Guaranty
HFA --Housing Finance Authority IDA --Industrial Development Authority IDB
- --Industrial Development Bond IDR --Industrial Development Revenue IDRB
- --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement
LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PCA --Pollution
Control Authority PCR --Pollution Control Revenue PLC --Public Limited Company
PRF --Prerefunded TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable
Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
ALABAMA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 222,557,086
Income receivable 1,446,381
Receivable for shares sold 249
Deferred organizational costs 20,519
Deferred expenses 12,196
Total assets 224,036,431
LIABILITIES:
Payable for shares redeemed $ 16,328
Income distribution payable 228,532
Payable to Bank 85,696
Accrued expenses 58,664
Total liabilities 389,220
Net Assets for 223,647,211 shares outstanding $ 223,647,211
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$223,647,211 u 223,647,211 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
ALABAMA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,298,096
EXPENSES:
Investment advisory fee $ 1,102,550
Administrative personnel and services fee 166,497
Custodian fees 14,879
Transfer and dividend disbursing agent fees and expenses 34,179
Directors'/Trustees' fees 2,835
Auditing fees 12,544
Legal fees 8,419
Portfolio accounting fees 60,067
Shareholder services fee 551,275
Share registration costs 28,714
Printing and postage 15,396
Insurance premiums 3,423
Miscellaneous 17,848
Total expenses 2,018,626
Waivers --
Waiver of investment advisory fee $ (774,067)
Waiver of shareholder services fee (22,051)
Total waivers (796,118)
Net expenses 1,222,508
Net investment income $ 7,075,588
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
ALABAMA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,075,588 $ 6,674,235
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (7,075,588) (6,674,235)
SHARE TRANSACTIONS--
Proceeds from sale of shares 655,080,120 712,795,816
Net asset value of shares issued to shareholders in payment of 4,317,122 3,730,255
distributions declared
Cost of shares redeemed (669,470,177) (692,296,354)
Change in net assets resulting from share transactions (10,072,935) 24,229,717
Change in net assets (10,072,935) 24,229,717
NET ASSETS:
Beginning of period 233,720,146 209,490,429
End of period $ 223,647,211 $ 233,720,146
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
ALABAMA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Alabama Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the State of Alabama consistent with stability of
principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund's use of the amortized cost method to value its portfolio securities is
in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Act.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <S> <C>
Alabama HFA, Variable Rate Certificates, 8/14/1997 $9,995,000
(Series 1997-J) Weekly VRDNs
Columbia, AL, IDB, CDC Municipal Products, 9/30/1997-10/1/1997 $2,185,000
Inc., (Series 1997-I) Weekly VRDNs
</TABLE>
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
October 31, 1997, capital paid-in aggregated $223,647,211. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
Shares sold 655,080,120 712,795,816
Shares issued to shareholders in payment of distributions 4,317,122 3,730,255
declared
Shares redeemed (669,470,177) (692,296,354)
Net change resulting from share transactions (10,072,935) 24,229,717
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $57,711 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the period ended October 31, 1997, the Fund expensed $8,673 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $396,064,557 and $444,520,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 80.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 10.0% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (ALABAMA
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Alabama
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997 and the related statement of operations for
the year then ended and the statements of changes in net assets and the
financial highlights (see page 2 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. Our procedures included confirmation of the securities owned at
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alabama Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
NOTES
[Graphic]
Alabama Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
ALABAMA MUNICIPAL CASH TRUST
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
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
1-800-245-7400
www.federatedinvestors.com
Cusip 314229790
3090802A (12/97)
[Graphic]
ALABAMA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Alabama Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
ALABAMA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-245-7400
www.federatedinvestors.com
Cusip 314229790
3090802B (12/97)
[Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1
Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2
Investing in Securities of Other Investment Companies 2 ALABAMA INVESTMENT
RISKS 2 INVESTMENT LIMITATIONS 3 Selling Short and Buying on Margin 3 Issuing
Senior Securities And Borrowing Money 3 Pledging Assets 3 Lending Cash or
Securities 3 Investing in Commodities 3 Investing in Real Estate 3 Underwriting
3 Concentration of Investments 3 Investing in Illiquid Securities 4 Investing
for Control 4 Investing in Options 4 Regulatory Compliance 4 FEDERATED
MUNICIPAL TRUST MANAGEMENT 4 Share Ownership 8 Trustee Compensation 9 Trustee
Liability 9 INVESTMENT ADVISORY SERVICES 9 Investment Adviser 9 Advisory Fees
10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian
and Portfolio Accountant 10 Transfer Agent 10 Independent Public Accountants 11
SHAREHOLDER SERVICES 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 11 THE FUND'S TAX STATUS 12 PERFORMANCE
INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 12
Tax-Equivalency Table 12 Total Return 13 Performance Comparisons 13 Economic
and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 14
Institutional Clients 14 Bank Marketing 14 Broker/Dealers and Bank
Broker/Dealer Subsidiaries 14 APPENDIX 15
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment. In determining the liquidity of municipal lease securities,
the investment adviser, under the authority delegated by the Trustees, will base
its determination on the following factors: whether the lease can be terminated
by the lessee; the potential recovery, if any, from a sale of the leased
property upon termination of the lease; the lessee's general credit strength
(e.g., its debt, administrative, economic, and financial characteristics and
prospects); the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer deemed
essential to its operations (e.g., the potential for an "event of
non-appropriation"); and any credit enhancement or legal recourse provided upon
an event of non-appropriation or other termination of the lease. RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled. CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
ALABAMA INVESTMENT RISKS
The State of Alabama has experienced some diversification of its economy
primarily centered around its metropolitan areas. Agriculture, dominant prior to
World War II has given way to the manufacturing of textiles, chemicals, paper,
and metals. Manufacturing comprises roughly 23% of Alabama's non-agricultural
employment, slightly above the rest of the US., and continues to remain strong
as evidenced by Mercedes-Benz's decision to locate a plant in Alabama. Other
major non-agricultural sectors include government (20%); wholesale and retail
trade (22%); and services, including finance, insurance, and real estate (24%).
Over the last decade, the economy has further diversified with the addition of
high-tech firms to the Huntsville area and healthcare services to the Birmingham
area. During the 1982 recession Alabama's unemployment rate climbed into double
digits. The recent recession, however, has not been as severe to the Alabama
economy. The state's unemployment rate has reflected national trends (4.7% as of
October 1997). However the North American Free Trade Agreement leaves Alabama
exposed to potential job losses in some traditional industries as Mexico offers
a lower-cost environment. Alabama's overall debt structure is more complex than
most states due to its many issuing authorities. Roughly 60% of Alabama's debts
are special or limited tax obligations, payable from designated sources. Debt
service as a percentage of budget revenues is currently 4.8%, which is above
average for the nation. However, since Alabama generally taxes and spends less
than most states, debt service appears as a larger part of its revenue in
relation to other states. Debt service on a per capita basis is moderate. The
state has a strong balanced budget act that allows spending only from moneys on
hand. The governor has the ability to prorate budgeted expenditures during the
fiscal year in order to balance the budget. This proration ability has been
challenged in court, and the outcome may adversely affect the mechanism by which
the budget is balanced. Furthermore, Alabama's school funding has been
challenged; resolution of this matter may affect the state budget.
The Fund's concentration in securities issued by the state and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
state or its municipalities to meet their obligations will depend upon the
availability of tax and other revenues; economic, political, and demographic
conditions within the state; and the underlying fiscal condition of the state,
its counties, and municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the value of
its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire publicly or
nonpublicly issued Alabama municipal securities or temporary investments or
enter into repurchase agreements in accordance with its investment objective,
policies, limitations, and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities, if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President, and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund. As of November
24, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of Alabama Municipal Cash Trust: Hubco, Birmingham, Alabama,
owned approximately 54,203,137 shares (23.23%); Lynspen & Co., Birmingham,
Alabama, owned approximately 34,329,350 shares (14.71%); and Ebsco Industries,
Inc., Birmingham, Alabama, owned approximately 22,541,055 shares (9.66%).
TRUSTEE COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and President and
Trustee 8 other investment companies in the
Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis,
M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty,
Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund,or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31,1997, 1996, and 1995, the adviser earned $1,102,550, $1,049,210, and
$820,528, respectively, of which $774,067, $692,887, and $606,516, respectively,
were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle
the purchase and sale of portfolio instruments, the adviser looks for prompt
execution of the order at a favorable price. In working with dealers, the
adviser will generally use those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
During the fiscal years ended October 31, 1997, 1996, and 1995, the Fund paid no
brokerage commissions. Although investment decisions for the Fund are made
independently from those of the other accounts managed by the adviser,
investments of the type the Fund may make may also be made by those other
accounts. When the Fund and one or more other accounts managed by the adviser
are prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. In other cases, however, it is believed
that coordination and the ability to participate in volume transactions will be
to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $166,497, $158,659,
and $131,658, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will benefit
by: (1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts. For the fiscal year ended
October 31, 1997, the Fund earned shareholder service fees in the amount of
$551,275, of which $529,224 was paid to financial institutions. DETERMINING NET
ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The Fund's yield for the seven-day period ended October 31, 1997, was
3.25%. EFFECTIVE YIELD The effective yield is calculated by compounding the
unannualized base period return by: adding 1 to the base period return; raising
the sum to the 365/7th power; and subtracting 1 from the result. The Fund's
effective yield for the seven-day period ended October 31, 1997, was 3.30%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 44.60% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt. The Fund's tax-equivalent yield for the seven-day period ended October
31, 1997, was 5.87%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used
in advertising and sales literature. The interest earned by the municipal
securities in the Fund's portfolio generally remains free from federal regular
income tax,* and is often free from state and local taxes as well. As the table
on the next page indicates, a "tax-free" investment can be an attractive choice
for investors, particularly in times of narrow spreads between tax-free and
taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF ALABAMA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.00% 33.00% 36.00% 41.00% 44.60%
JOINT $1 - $41,201 - $99,601 - $151,751 OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1 - $24,651 - $59,751 - $124,651 - OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
2.50% 3.13% 3.73% 3.91% 4.24% 4.51%
3.00% 3.75% 4.48% 4.69% 5.08% 5.42%
3.50% 4.38% 5.22% 5.47% 5.93% 6.32%
4.00% 5.00% 5.97% 6.25% 6.78% 7.22%
4.50% 5.63% 6.72% 7.03% 7.63% 8.12%
5.00% 6.25% 7.46% 7.81% 8.47% 9.03%
5.50% 6.88% 8.21% 8.59% 9.32% 9.93%
6.00% 7.50% 8.96% 9.38% 10.17% 10.83%
6.50% 8.13% 9.70% 10.16% 11.02% 11.73%
7.00% 8.75% 10.45% 10.94% 11.86% 12.64%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions. The Fund's average
annual total returns for the one-year period ended October 31, 1997, and for the
period from December 3, 1993 (date of initial public investment) through October
31, 1997, were 3.26% and 3.19%, respectively. PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the money market sector, Federated Investors gained
prominence in the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered the use
of the amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money market
fund. As of December 31, 1996, Federated Investors managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime, and 21 municipal with assets approximating $28.0 billion, $12.8 billion,
and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios. 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 $3.5 trillion to the more than 6,000 funds available.* Federated Investors,
through its subsidiaries, distributes mutual funds for a variety of investment
applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division. BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp. * Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
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, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
NORTH CAROLINA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
PROSPECTUS
The shares of North Carolina Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term North Carolina municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of North Carolina, or its political subdivisions
and financing authorities, but which provide current income exempt from federal
regular income tax and the income tax imposed by the State of North Carolina
consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS
ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY
ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS
IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE
ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December
31, 1997 TABLE OF CONTENTS <TABLE> <S> <C>
Summary of Fund Expenses 1 Financial Highlights 2 General Information 3
Investment Information 3 Investment Objective 3 Investment Policies 3 North
Carolina Municipal Securities 5 Investment Risks 5 Investment Limitations 5
Fund Information 6 Management of the Fund 6 Distribution of Shares 6
Administration of the Fund 7 Net Asset Value 7 How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 7 Purchasing Shares by Wire 7
Purchasing Shares by Check 8 Special Purchase Features 8 How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8 Redeeming Shares by
Telephone 8 Redeeming Shares by Mail 8 Special Redemption Features 9 Account
and Share Information 9 Dividends 9 Capital Gains 9 Confirmations and Account
Statements 9 Accounts with Low Balances 9 Voting Rights 9 Tax Information 10
Federal Income Tax 10 State and Local Taxes 10 Performance Information 10
Financial Statements 11 Report of Independent Public Accountants 22
</TABLE>
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption proceeds, as applicable)
None Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.10%
12b-1 Fee None
Total Other Expenses 0.49%
Shareholder Services Fee 0.25%
Total Fund Operating Expenses(2) 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%
(2) The total operating expenses would have been 0.99% absent the voluntary
waiver of a portion of the management fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Trust will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Fund Information". Wire--transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 6
3 Years $19
5 Years $33
10 Years $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference
is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.04 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.24% 3.23% 3.51% 2.06%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.59% 0.59% 0.59% 0.49%*
Net investment income 3.19% 3.17% 3.46% 2.54%*
Expense waiver/reimbursement(c) 0.40% 0.42% 0.40% 0.44%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $172,636 $137,749 $97,602 $85,249
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 31, 1993 (date of initial
public investment) to October 31, 1994. For the period from November 29, 1993
(start of business) to December 31, 1993, the Fund had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business
trust under a Declaration of Trust dated September 1, 1989. The Declaration of
Trust permits the Trust to offer separate series of shares representing
interests in separate portfolios of securities. The Fund is designed for
financial institutions acting in an agency or fiduciary capacity as a convenient
means of accumulating an interest in a professionally managed portfolio
investing in short-term North Carolina municipal securities. The Fund may not be
a suitable investment for retirement plans or for non-North Carolina taxpayers
because it invests in municipal securities of that state. A minimum initial
investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the State of North Carolina
consistent with stability of principal. This investment objective cannot be
changed without shareholder approval. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and North Carolina state income
tax or at least 80% of its net assets will be invested in obligations, the
interest income from which is exempt from federal regular and North Carolina
state income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of North
Carolina and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and North Carolina income
tax ("North Carolina Municipal Securities"). Examples of North Carolina
Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par.
The interest rate may float or be adjusted at regular intervals (ranging from
daily to annually), and is normally based on a published interest rate or
interest rate index. Most variable rate demand notes allow the Fund to demand
the repurchase of the security on not more than seven days prior notice.
Other notes only permit the Fund to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand Features."
The Fund treats variable rate demand notes as maturing on the later of the
date of the next interest rate adjustment or the date on which the Fund may
next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in North Carolina
Municipal Securities from financial institutions such as commercial and
investment banks, savings associations, and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying North Carolina Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation interest in any of the above. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. Under criteria
established by the Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to be
liquid, the Fund will limit their purchase, together with other illiquid
securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in tax-exempt or taxable securities, all of comparable quality
to other securities in which the Fund invests, such as: obligations issued by or
on behalf of municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; instruments issued by a
U.S. branch of a domestic bank or other depository institutions having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment; and repurchase agreements (arrangements in which the organization
selling the Fund a temporary investment agrees at the time of sale to repurchase
it at a mutually agreed-upon time and price). Although the Fund is permitted to
make taxable, temporary investments, there is no current intention to do so.
However, the interest from certain North Carolina Municipal Securities is
subject to the federal alternative minimum tax.
NORTH CAROLINA MUNICIPAL SECURITIES
North Carolina Municipal Securities are
generally issued to finance public works, such as airports, bridges, highways,
housing, hospitals, mass transportation projects, schools, streets, and water
and sewer works. They are also issued to repay outstanding obligations, to raise
funds for general operating expenses, and to make loans to other public
institutions and facilities.
North Carolina Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of North Carolina Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on North Carolina Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of North Carolina Municipal Securities and participation interests, or the
credit enhancers of either, to meet their obligations for the payment of
interest and principal when due. In addition, from time to time, the supply of
North Carolina Municipal Securities acceptable for purchase by the Fund could
become limited.
The Fund may invest in North Carolina Municipal Securities which are repayable
out of revenue streams generated from economically related projects or
facilities and/or whose issuers are located in the same state. Sizable
investments in these North Carolina Municipal Securities could involve an
increased risk to the Fund should any of these related projects or facilities
experience financial difficulties.
Obligations of issuers of North Carolina Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in North Carolina Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through
reverse repurchase agreements (arrangements in which the Fund sells a money
market instrument for a percentage of its cash value with an agreement to buy it
back on a set date) or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and pledge
up to 15% of the value of total assets to secure such borrowings. These
investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is
managed by a Board of Trustees. The Trustees are responsible for managing the
Fund's business affairs and for exercising all the Trust's powers except those
reserved for the shareholders. An Executive Committee of the Board of Trustees
handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive
a portion of its fee or reimburse other expenses of the Fund, but reserves
the right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number
of investment companies. With over $110 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal
distributor for shares of the Fund. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be perform
shareholder services. Financial institutions will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL
INSTITUTIONS In addition to payments made pursuant to the Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational, and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates. ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per share. The
net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a
sales charge, next determined after an order is received, on days on which the
New York Stock Exchange is open for business. Shares may be purchased, as
described below, either through a financial institution (such as a bank or
broker/dealer) or by wire or by check directly from the Fund, with a minimum
initial investment of $10,000 or more over a 90-day period. Financial
institutions may impose different minimum investment requirements on their
customers. In connection with any sale, Federated Securities Corp. may from time
to time offer certain items of nominal value to any shareholder or investor. The
Fund reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase
shares through a financial institution which has a sales agreement with the
distributor. Orders are considered received when the Fund receives payment by
wire or converts payment by check from the financial institution into federal
funds. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by
calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) in order to begin earning dividends that same
day. Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: North Carolina Municipal Cash Trust; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Nominee or Institution Name; and ABA Number 011000028.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your shareholder
services representative at the telephone number listed on your account
statement. PURCHASING SHARES BY CHECK Shares may be purchased by sending a check
to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to North Carolina Municipal Cash Trust. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded, and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed
confirmations of transactions (except for systematic program transactions). In
addition, shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with
low balances, the Fund may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$10,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights; except that in
matters affecting only a particular portfolio, only shareholders of that
portfolio are entitled to vote. The Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from
taxes in states other than North Carolina. Shareholders are urged to consult
their own tax advisers regarding the status of their accounts under state and
local tax laws.
NORTH CAROLINA TAXES
Under existing North Carolina laws, distributions made
by the Fund will not be subject to North Carolina income taxes to the extent
that such distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest on obligations of the state of North
Carolina or any of its political subdivisions; or (ii) interest on obligations
of the United States or its possessions. Conversely, to the extent that
distributions made by the Fund are derived from other types of obligations, such
distributions will be subject to North Carolina income taxes.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
NORTH CAROLINA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPAL SECURITIES--99.2%
NORTH CAROLINA--94.0%
$ 1,755,000 Alamance County, NC Industrial Facilities & Pollution Control $ 1,755,000
Financing Authority, (Series B) Weekly VRDNs (Culp,
Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC)
1,600,000 Buncombe County, NC Industrial Facilities & Pollution Control 1,600,000
Financing Authority, (Series 1991) Weekly VRDNs (Rich Mount,
Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
1,335,000 Burke County, NC Industrial Facilities & Pollution Control 1,335,000
Financing Authority Weekly VRDNs (Norwalk Furniture Corp. &
Hickory Furniture)/(Branch Banking & Trust Co., Wilson LOC)
730,000 Catawba County, NC Industrial Facilities & Pollution Control 730,000
Financing Authority, (Series 1992) Weekly VRDNs (WSMP,
Inc.)/(Nationsbank, N.A., Charlotte LOC)
4,200,000 Catawba County, NC Industrial Facilities & Pollution Control 4,200,000
Financing Authority, (Series 1994) Weekly VRDNs (Ethan Allen
Inc. Project)/(Bankers Trust Co., New York LOC)
3,365,000 Cleveland County, NC Industrial Facilities and Pollution 3,365,000
Control Financing Authority, IDRB (Series 1990) Weekly VRDNs
(MetalsAmerica, Inc. Project)/(Bank of Boston, N.A. LOC)
1,490,000 Cleveland County, NC Industrial Facilities and Pollution 1,490,000
Control Financing Authority, Pollution Control Revenue Bonds
(Series 1995) Weekly VRDNs (Grover Industries, Inc. Project)/
(Bank of America Illinois LOC)
920,000 Davidson County, NC Industrial Facilities & PCFA, IDRB 920,000
(Series 1995) Weekly VRDNs (Lawrence Industries, Inc.
Project)/(Michigan National Bank, Farmington Hills LOC)
6,000,000 Gaston County, NC Industrial Facilities and Pollution Control 6,000,000
Financing Authority, (Series 1997) Weekly VRDNs (Thermoform
Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC)
1,800,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1,800,000
1989) Weekly VRDNs (Bonset America Corp.)/(Dai-Ichi Kangyo
Bank Ltd., Tokyo and Industrial Bank of Japan Ltd., Tokyo
LOCs)
4,300,000 Halifax County, NC Industrial Facilities & PCFA Weekly VRDNs 4,300,000
(Flambeau Airmold Project)/ (Norwest Bank Minnesota,
Minneapolis LOC)
2,944,000 Halifax County, NC, 3.74% BANs, 5/13/1998 2,944,592
2,600,000 High Point, NC, (Series 1997A), 3.90% BANs, 3/11/1998
2,600,000 4,000,000 Iredell County, NC Industrial Facilities &
Pollution Control 4,000,000
Financing Authority, (Series 1984), 4.05% TOBs (Rubbermaid
Specialty Products, Inc.)/(Rubbermaid, Inc. GTD), Optional
Tender 6/1/1998
600,000 Iredell County, NC Industrial Facilities & Pollution Control 600,000
Financing Authority, Industrial Revenue Bonds Weekly VRDNs
(Jet Corr, Inc. Project)/ (National Bank of Canada, Montreal
LOC)
1,000,000 Johnson County, NC Industrial Facilities & Pollution Control 1,000,000
Financing Authority, (Series 19960 Weekly VRDNs (Inolex
Chemical Company Project)/(PNC Bank, N.A. LOC)
3,250,000 Lee County, NC Industrial Facility & PCFA, (Series 1989) 3,250,000
Weekly VRDNs (Avondale Mills, Inc.)/ (SunTrust Bank, Atlanta
LOC)
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
NORTH CAROLINA--CONTINUED
$ 2,200,000 Lincoln County, NC Industrial Facilities & Pollution Control $ 2,200,000
Financing Authority, Industrial Revenue Bonds Weekly VRDNs
(Leucadia, Inc. Project)/ (National Bank of Canada, Montreal
LOC)
15,300,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs 15,300,000
(Weyerhaeuser Co.)
5,000,000 McDowell County, NC Industrial Facilities and Pollution 5,000,000
Control Financing Authority, (Series 1997) Weekly VRDNs
(Parker Hosiery, Inc.)/(First Union National Bank, Charlotte,
N.C. LOC)
2,500,000 Mecklenberg County, NC Industrial Facilities and Pollution 2,500,000
Control Financing Authority, (Series 1996) Weekly VRDNs
(SteriGenics International Project)/ (Comerica Bank, Detroit,
MI LOC)
1,000,000 Mecklenburg County, NC, (Series 1996) Weekly VRDNs (YMCA of 1,000,000
Greater Charlotte Project)/ (Wachovia Bank of NC, NA,
Winston-Salem LOC)
3,010,000 New Hanover County, NC PCFA Weekly VRDNs (Efson, 3,010,000
Inc.)/(Branch Banking & Trust Co., Wilson LOC)
6,000,000 New Hanover County, NC PCFA, (Series 1984) Weekly VRDNs 6,000,000
(American Hoist & Derrick Co. Project)/(First Union National
Bank, Charlotte, N.C. LOC)
1,335,000 New Hanover County, NC PCFA, (Series 1990) Weekly VRDNs 1,335,000
(Wilmington Machinery Inc. Project)/(Branch Banking & Trust
Co, Wilson LOC)
4,500,000 New Hanover County, NC, GO School Bonds, (Series 1995)
Weekly 4,500,000 VRDNs (Wachovia Bank of NC, NA,
Winston-Salem LIQ)
2,800,000 North Carolina Agricultural Finance Authority, (Series 1996) 2,800,000
Weekly VRDNs (Coastal Carolina Gin L.L.C. Project)/(Branch
Banking & Trust Co., Wilson LOC)
6,060,000 (b)North Carolina Eastern Municipal Power Agency, PA -171 6,060,000
(Series 1996A) Weekly VRDNs (MBIA INS)/(Merrill Lynch Capital
Services, Inc. LIQ)
9,165,000 (b)North Carolina Eastern Municipal Power Agency, PT-132, 9,165,000
3.90% TOBs (MBIA INS)/ (Credit Suisse First Boston, Inc.
LIQ), Mandatory Tender 10/1/1998
1,070,000 North Carolina Medical Care Commission Hospital, (Series 1,072,094
1995), 4.40% Bonds (Gaston Memorial Hospital Project),
2/15/1998
4,000,000 North Carolina Medical Care Commission Hospital, (Series 4,000,000
1996) Weekly VRDNs (Adult Communities Total Services,
Inc.)/(Lasalle National Bank, Chicago LOC)
3,300,000 North Carolina Medical Care Commission Hospital, (Series 3,300,000
1996) Weekly VRDNs (North Carolina Baptist)
2,400,000 North Carolina Medical Care Commission Hospital, Revenue 2,400,000
Bonds (Series 1992B) Weekly VRDNs (North Carolina Baptist)
2,000,000 North Carolina Medical Care Commission Hospital, Revenue 2,000,000
Bonds (Series 1993) Weekly VRDNs (Moses H. Cone Memorial)
6,415,000 North Carolina Municipal Power Agency No. 1, (Series A), 6,415,000
3.80% CP (Morgan Guaranty Trust Co., New York and Union Bank
of Switzerland, Zurich LOCs), Mandatory Tender 12/5/1997
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
NORTH CAROLINA--CONTINUED
$ 4,000,000 North Carolina Municipal Power Agency No. 1, (Series A), $ 4,000,000
3.85% CP (Morgan Guaranty Trust Co., New York and Union Bank
of Switzerland, Zurich LOCs), Mandatory Tender 12/5/1997
2,000,000 North Carolina State, UT GO, 6.10% Bonds, 3/1/1998
2,016,283 4,000,000 Onslow County, NC Industrial Facilities &
Pollution Control 4,000,000
Financing Authority Weekly VRDNs (Mine Safety Appliances
Co.)/(Sanwa Bank Ltd., Osaka LOC)
3,280,000 Orange County, NC Industrial Facilities & Pollution Control 3,280,000
Financing Authority Weekly VRDNs (Mebane Packaging
Corp.)/(First Union National Bank, Charlotte, N.C. LOC)
1,400,000 Piedmont, NC Airport Authority Weekly VRDNs (Triad 1,400,000
International Maintenance Corp.)/ (Mellon Bank NA, Pittsburgh
LOC)
1,700,000 Randolph County, NC IDA, (Series 1990) Weekly VRDNs (Wayne 1,700,000
Steel, Inc.)/ (Bank One, Ohio, N.A. LOC)
1,600,000 Rutherford County, NC, Industrial Facilities Pollution 1,600,000
Control Financing Authority Weekly VRDNs (Spring-Ford
Knitting Co.)/(Branch Banking & Trust Co., Wilson LOC)
1,500,000 Sampson County, NC Industrial Facilities and Pollution 1,500,000
Control Financing Authority, (Series 1997) Weekly VRDNs
(DuBose Strapping, Inc.)/(First Union National Bank,
Charlotte, N.C. LOC)
3,900,000 Wake County, NC Industrial Facilities & PCFA, (Series
1990A), 3,900,000 3.80% CP (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
1/21/1998
2,000,000 Wake County, NC Industrial Facilities & PCFA, (Series
1990A), 2,000,000 3.80% CP (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
1/22/1998
5,700,000 Wake County, NC Industrial Facilities & PCFA, (Series
1990B), 5,700,000 3.75% CP (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
11/18/1997
3,000,000 Wake County, NC Industrial Facilities & PCFA, (Series
1990B), 3,000,000 3.80% CP (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender
11/18/1997
2,000,000 Wake County, NC, UT GO, 4.70% Bonds, 3/1/1998 2,007,680
3,305,008 Wayne County, NC PCFA Weekly VRDNs (Cooper Industries,
Inc.)/ 3,305,008
(Sanwa Bank Ltd., Osaka LOC)
3,000,000 Winston-Salem, NC, GO Bonds (Series 1990) Weekly VRDNs 3,000,000
(Credit Suisse First Boston LIQ)
TOTAL 162,355,657
PUERTO RICO--5.2%
5,000,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 5,000,000
Tender 1/14/1998
3,000,000 Puerto Rico Industrial, Medical & Environmental PCA,
(Series 3,000,000 1983A), 3.80% TOBs (Reynolds Metals
Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender
9/1/1998
</TABLE>
NORTH CAROLINA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
PUERTO RICO--CONTINUED
$ 1,000,000 Puerto Rico Industrial, Medical & Environmental PCA, $ 1,000,120
Pollution Control Facilities Financing Authority (Series 1983
A), 3.75% TOBs (Schering Plough Corp.)/ (Morgan Guaranty
Trust Co., New York LOC), Optional Tender 12/1/1997
TOTAL 9,000,120
TOTAL INVESTMENTS (AT AMORTIZED COST(C) $ 171,355,777
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 29.9% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$15,225,000, which represents 8.8% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($172,635,784) at October 31, 1997.
The following acronyms are used throughout this portfolio:
BANs --Bond Anticipation Notes
CP --Commercial Paper
GO --General Obligation
GTD --Guaranty
IDA --Industrial Development Authority
IDRB --Industrial Development Revenue Bond IFA --Industrial Finance Authority
INS --Insured LIQ --Liquidity Agreement LOCs --Letters of Credit LOC --Letter of
Credit MBIA --Municipal Bond Investors Assurance PCA --Pollution Control
Authority PCFA --Pollution Control Finance Authority TOBs --Tender Option Bonds
UT --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
NORTH CAROLINA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at amortized cost and value $ 171,355,777
Cash 284,058
Income receivable 991,128
Receivable for shares sold 114,208
Deferred organizational costs 18,982
Deferred expenses 12,769
Total assets 172,776,922
LIABILITIES:
Payable for shares redeemed $ 50,552
Income distribution payable 24,595
Accrued expenses 65,991
Total liabilities 141,138
Net Assets for 172,635,784 shares outstanding $ 172,635,784
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$172,635,784 / 172,635,784 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
NORTH CAROLINA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 5,342,971
EXPENSES:
Investment advisory fee $ 707,395
Administrative personnel and services fee 126,345
Custodian fees 9,560
Transfer and dividend disbursing agent fees and expenses 59,016
Directors'/Trustees' fees 1,985
Auditing fees 12,544
Legal fees 7,414
Portfolio accounting fees 50,689
Shareholder services fee 352,847
Share registration costs 41,563
Printing and postage 7,034
Insurance premiums 3,098
Miscellaneous 18,773
Total expenses 1,398,263
Waiver--
Waiver of investment advisory fee (559,422)
Net expenses 838,841
Net investment income $ 4,504,130
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
NORTH CAROLINA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 4,504,130 $ 3,699,402
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (4,504,130) (3,699,402)
SHARE TRANSACTIONS--
Proceeds from sale of shares 898,803,747 825,948,456
Net asset value of shares issued to shareholders in payment of 3,808,923 2,898,862
distributions declared
Cost of shares redeemed (867,725,411) (788,700,740)
Change in net assets resulting from share transactions 34,887,259 40,146,578
Change in net assets 34,887,259 40,146,578
NET ASSETS:
Beginning of period 137,748,525 97,601,947
End of period $ 172,635,784 $ 137,748,525
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
NORTH CAROLINA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of North Carolina Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the State of North Carolina consistent with
stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may engage in when-issued
or delayed delivery transactions. The Fund records when-issued securities on the
trade date and maintains security positions such that sufficient liquid assets
will be available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to market daily
and begin earning interest on the settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
North Carolina Eastern 9/11/1997 $ 6,060,000
Municipal Power Agency, PA-171
(Series 1996A)
North Carolina Eastern 10/2/1997 $ 9,165,000
Municipal Power Agency, PT-132
</TABLE>
DEFERRED EXPENSES
The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being amortized
over a period not to exceed five years from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). At October 31, 1997, capital paid-in aggregated
$172,635,784. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
Shares sold 898,803,747 825,948,456
Shares issued to shareholders in payment of distributions
declared 3,808,923 2,898,862
Shares redeemed (867,725,411) (788,700,740)
Net change resulting from share transactions 34,887,259 40,146,578
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $53,386 were borne
initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the year ended October
31, 1997, the Fund expensed $5,713 of organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $393,209,250 and $370,880,000, respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of
its assets in issuers located in one state, it will be more susceptible to
factors adversely affecting issuers of that state than would be a comparable
tax-exempt mutual fund that invests nationally. In order to reduce the credit
risk associated with such factors, at October 31, 1997, 73.0% of the securities
in the portfolio of investments are backed by letters of credit or bond
insurance of various financial institutions and financial guaranty assurance
agencies. The percentage of investments insured by or supported (backed) by a
letter of credit from any one institution or agency did not exceed 9.0% of total
investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (NORTH
CAROLINA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of North
Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997 and the related statement of operations for
the year then ended and the statements of changes in net assets and the
financial highlights (see page 2 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. Our procedures included confirmation of the securities owned at
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of North
Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
NORTH CAROLINA MUNICIPAL CASH TRUST
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
NORTH CAROLINA MUNICIPAL CASH TRUST 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
Federated Securities Corp., Distributor
Cusip 314229782
3090803A (12/97)
[Graphic]
NORTH CAROLINA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
North Carolina Municipal Cash Trust (the "Fund"), a portfolio of Federated
Municipal Trust (the "Trust") dated December 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.
North Carolina Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Securities Corp. Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229782
3090803B (12/97)
TABLE OF CONTENTS
Investment Policies 1 Acceptable Investments 1 Participation Interests 1
Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2
Investing in Securities of Other Investment Companies 2 North Carolina
Investment Risks 2 Investment Limitations 3 Selling Short and Buying on Margin
3 Issuing Senior Securities and Borrowing Money 3 Pledging Assets 3 Lending
Cash or Securities 3 Investing in Commodities 3 Investing in Real Estate 3
Underwriting 3 Concentration of Investments 3 Investing in Illiquid Securities
4 Investing for Control 4 Investing in Options 4 Regulatory Compliance 4
Federated Municipal Trust Management 5 Share Ownership 8 Trustee Compensation 9
Trustee Liability 9 Investment Advisory Services 9 Investment Adviser 9
Advisory Fees 10 Brokerage Transactions 10 Other Services 10 Fund
Administration 10 Custodian and Portfolio Accountant 10 Transfer Agent 10
Independent Public Accountants 11 Shareholder Services 11 Determining Net Asset
Value 11 Redemption in Kind 11 Massachusetts Partnership Law 12 The Fund's Tax
Status 12 Performance Information 12 Yield 12 Effective Yield 12 Tax-Equivalent
Yield 12 Tax-Equivalent Table 12 Total Return 13 Performance Comparisons 13
Economic and Market Information 14 About Federated Investors 14 Mutual Fund
Market 14 Institutional Clients 14 Bank Marketing 14 Broker/Dealers and Bank
Broker/Dealer Subsidiaries 15 Appendix 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
NORTH CAROLINA INVESTMENT RISKS
The state of North Carolina's credit strength is derived from a diversified and
growing economy, relatively low unemployment rates, strong financial management,
and a low debt burden. In recent years, the state's economy has become less
dependent on agriculture (primarily tobacco) and manufacturing (textiles and
furniture) and has experienced increased activity in financial services,
research, high-tech manufacturing, and tourism. Although by national standards
North Carolina is not one of the wealthier states (89% of national average), it
is among the top in the Southeast region and its growth in personal income
continues to outstrip national figures. The employment picture in North Carolina
remains healthy with unemployment rates significantly below national averages
and employment growth rates among the highest in the country.
North Carolina is a conservative debt issuer and has consistently maintained
extremely low debt levels. Such conservative levels are inherent in the state's
financial structure which contains constitutional debt limits. The state's
administration continues to demonstrate its ability and willingness to adjust
financial planning and budgeting to preserve financial balance. When finances
became tight during the recession of the early 1990s, the state quickly
responded to shortfalls by increasing its sales and corporate tax rates and
implementing expenditure reductions. Since the recession, North Carolina has
seen improving state finances and has implemented a series of tax cuts while
maintaining to fund capital and budget reserve accounts. The finances of many of
North Carolina's municipalities are also very strong. This strength can be
partially attributed to the Local Government Commission of North Carolina which
serves as a central oversight and consulting group which must approve all debt
issued by state municipalities. It is interesting to note that over 25% of all
Aaa-rated tax-exempt bonds issued nationwide are issued by local municipalities
within the state.
The Fund's concentration in securities issued by the state and its political
subdivisions provide a greater level of risk than a fund which is diversified
across a number of states and municipal entities. The ability of the state or
its municipalities to meet their obligations will depend on the availability of
tax and other revenues; economic, political, and demographic conditions within
the state; and the underlying fiscal condition of the state, its counties, and
its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the value of
its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire publicly or
nonpublicly issued North Carolina municipal securities or temporary investments
or enter into repurchase agreements in accordance with its investment objective,
policies, limitations, and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities, if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. govern-ment, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board. As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund. As of November
24, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of North Carolina Municipal Cash Trust: H.J. Faison-B,
Charlotte, North Carolina, owned approximately 12,204,200 shares (5.70%); First
Union National Bank, Charlotte, North Carolina, owned approximately 40,304,845
shares (18.83%); Murphy Farms, Inc., Rose Hill, North Carolina, owned
approximately 24,305,000 shares (11.35%); and Neil Realty Co., Kinston, North
Carolina, owned approximately 13,238,903 shares (6.18%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,443 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife and his son, J.
Christopher Donahue. The adviser shall not be liable to the North Carolina
Municipal Cash Trust, the Fund, or any shareholder of the Fund for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the North Carolina Municipal Cash Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $707,395, $582,818, and $537,013,
respectively, of which $559,422, $487,687, and $433,120, respectively, were
waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
year(s) ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made independently
from those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the adviser to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $126,345, $125,000,
and $125,000, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will benefit
by: (1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts. For the fiscal year ended
October 31, 1997, the Fund earned shareholder service fees in the amount of
$352,847, all of which was paid to financial institutions. DETERMINING NET ASSET
VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The Fund's yield for the seven-day period ended October 31, 1997, was
3.29%. EFFECTIVE YIELD The effective yield is calculated by compounding the
unannualized base period return by: adding 1 to the base period return; raising
the sum to the 365/7th power; and subtracting 1 from the result. The Fund's
effective yield for the seven-day period ended October 31, 1997, was 3.34%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 47.35% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt. The Fund's tax-equivalent yield for the seven-day period ended October
31, 1997, was 6.25%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used
in advertising and sales literature. The interest earned by the municipal
securities in the Fund's portfolio generally remains free from federal regular
income tax,* and is often free from state and local taxes as well. As the table
on the next page indicates, a "tax-free" investment can be an attractive choice
for investors, particularly in times of narrow spreads between tax-free and
taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NORTH CAROLINA
FEDERAL INCOME TAX BRACKET:
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- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
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.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions. The Fund's average
annual total returns for the one-year period ended October 31, 1997 and for the
period from December 31, 1993 (date of initial public investment) through
October 31, 1997 were 3.24% and 3.14%, respectively. PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* Lipper Analytical Services, Inc., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the money market sector, Federated Investors gained
prominence in the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered the use
of the amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money market
fund. As of December 31, 1996, Federated Investors managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime, and 21 municipal with assets approximating $28.0 billion, $12.8 billion,
and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios. 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 $3.5 trillion to the more than 6,000 funds available.* Federated Investors,
through its subsidiaries, distributes mutual funds for a variety of investment
applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division. BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp. * Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
MARYLAND MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
PROSPECTUS
The shares of Maryland Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Maryland municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Maryland, or its political subdivisions and
financing authorities, but which provide income exempt from federal regular
income tax and the personal income taxes imposed by the State of Maryland and
Maryland municipalities consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December
31, 1997 TABLE OF CONTENTS <TABLE> <S> <C>
Summary of Fund Expenses 1 Financial Highlights 2 General Information 3
Investment Information 3 Investment Objective 3 Investment Policies 3 Maryland
Municipal Securities 5 Investment Risks 5 Investment Limitations 5 Fund
Information 6 Management of the Fund 6 Distribution of Shares 6 Administration
of the Fund 7 Net Asset Value 7 How to Purchase Shares 7 Purchasing Shares
Through a Financial Institution 7 Purchasing Shares by Wire 7 Purchasing Shares
by Check 8 Special Purchase Features 8 How to Redeem Shares 8 Redeeming Shares
Through a Financial Institution 8 Redeeming Shares by Telephone 8 Redeeming
Shares by Mail 8 Special Redemption Features 9 Account and Share Information 9
Dividends 9 Capital Gains 9 Confirmations and Account Statements 9 Accounts
with Low Balances 9 Voting Rights 9 Tax Information 9 Federal Income Tax 9
State and Local Taxes 10 Performance Information 10 Financial Statements 11
Report of Independent Public Accountants 20
</TABLE>
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C> <C>
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after waiver)(2) 0.69%
Shareholder Services Fee (after waiver)(2) 0.24%
Total Operating Expenses(3) 0.69%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.32% absent the voluntary
waiver of the management fee and the voluntary waiver of a portion of the
shareholder services fee and the voluntary reimbursement of certain other
operating expenses.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Trust will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Fund Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 Year $ 7
3 Years $22
5 Years $38
10 Years $86
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 20.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.10% 3.11% 3.36% 1.30%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.69% 0.65% 0.65% 0.46%*
Net investment income 3.05% 3.09% 3.30% 2.68%*
Expense waiver/reimbursement (c) 0.63% 0.65% 0.50% 0.53%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $45,575 $54,286 $51,400 $56,275
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 9, 1994 (date of initial public
investment) to October 31, 1994. For the period from April 25, 1994 (start of
business) to May 9, 1994, the Fund had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Maryland municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Maryland taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Maryland and Maryland municipalities consistent with stability of principal and
liquidity. This investment objective cannot be changed without shareholder
approval. While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Maryland state and local
income tax. (Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Maryland and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Maryland state and
local income tax,("Maryland Municipal Securities"). Examples of Maryland
Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Maryland Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Maryland Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets. INVESTING IN
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Maryland
Municipal Securities is subject to the federal alternative minimum tax.
MARYLAND MUNICIPAL SECURITIES
Maryland Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Maryland Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Maryland Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Maryland Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Maryland Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Maryland
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Maryland Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Maryland Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Maryland Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Maryland Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
its total assets to secure such borrowings. These investment limitations cannot
be changed without shareholder approval. FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors. Federated Management and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. With over $110 billion invested
across more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the largest
mutual fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide. Both the Trust and the adviser have adopted
strict codes of ethics governing the conduct of all employees who manage the
Fund and its portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interests. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased or
sold, or being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are subject to
review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below: <TABLE> <CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per share. The
net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of
the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$10,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Maryland
Municipal Cash Trust; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement. PURCHASING SHARES BY CHECK Shares may
be purchased by sending a check to Federated Shareholder Services Company, P.O.
Box 8600, Boston, MA 02266-8600. The check should be made payable to: Maryland
Municipal Cash Trust. Please include an account number on the check. Orders by
mail are considered received when payment by check is converted into federal
funds (normally the business day after the check is received), and shares begin
earning dividends the next day. SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public. SPECIAL
REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights, except that in
matters affecting only a particular portfolio, only shareholders of that
portfolio are entitled to vote. The Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for election of Trustees
under certain circumstances. Trustees may be removed by the Trustees or by
shareholders at a special meeting. A special meeting shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Maryland. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
MARYLAND TAXES
Under existing Maryland laws, distributions made by the Fund will not be subject
to Maryland state or local income taxes to the extent that such distributions
qualify as exempt-interest dividends under the Internal Revenue Code, and
represent (i) interest on tax-exempt obligations of Maryland or its political
subdivisions or authorities; (ii) interest on obligations of the United States
or an authority, commission, instrumentality, possession or territory of the
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. PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
MARYLAND MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.2%
MARYLAND--92.9%
$1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.75% $1,000,000
CP (Baltimore Gas & Electric Co.), Mandatory Tender
12/15/1997
1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.85% 1,000,000
CP (Baltimore Gas & Electric Co.), Mandatory Tender
12/15/1997
3,630,000 Anne Arundel County, MD, Economic Development 3,630,000
Revenue Bonds (Series 1996) Weekly VRDNs (Atlas
Container Corp. Project)/(Mellon Bank NA,
Pittsburgh LOC)
2,275,000 Baltimore County, MD IDA, (Series 1994A) Weekly 2,275,000
VRDNs (Pitts Realty Limited Partnership)/ (PNC
Bank, NA, Delaware LOC)
1,700,000 Baltimore County, MD Port Facility 3.60% 1,700,000
(Occidental Petroleum Corp.)/(Morgan Guaranty Trust
Co., New York LOC) 11/15/1997
1,200,000 Baltimore County, MD, Revenue Bonds (1994 Issue) 1,200,000
Weekly VRDNs (Direct Marketing Associates, Inc.
Facility)/(First National Bank of Maryland,
Baltimore LOC)
500,000 Baltimore, MD PCR Weekly VRDNs (SCM Plants, 500,000
Inc.)/(Barclays Bank PLC, London LOC)
1,300,000 Carroll County, MD, Variable Rate Economic 1,300,000
Development Refunding Revenue Bonds (Series 1995B)
Weekly VRDNs (Evapco, Inc. Project)/(Nationsbank of
Maryland, N.A. LOC)
910,000 Elkton, MD, Revenue Refunding Bonds (Series 1992) 910,000
Weekly VRDNs (Highway Service Ventures, Inc.
Facility)/(First Union National Bank, Charlotte,
N.C. LOC)
1,000,000 Harford County, MD, EDRB (Series 1996) Weekly VRDNs 1,000,000
(Citrus and Allied Essences Ltd.)/ (First National
Bank of Maryland, Baltimore LOC)
3,141,000 Hartford County, MD, (Series 1989) Weekly VRDNs 3,141,000
(Hartford Commons Associates Facility)/
(Nationsbank, N.A., Charlotte LOC)
1,300,000 Howard County, MD, Consolidated Improvement Bonds 1,302,250
(Series 1997), 4.25% Bonds, 2/15/1998
1,000,000 Maryland EDC, Pooled Financing Revenue Bonds, 1,000,000
(Series 1995) Weekly VRDNs (Maryland Municipal Bond
Fund)/(Nationsbank, N.A., Charlotte LOC)
800,000 Maryland Health & Higher Educational Facilities 800,000
Authority, ACES Revenue Bonds (Series 1994) Weekly
VRDNs (Daughters of Charity)
1,000,000 Maryland Health & Higher Educational Facilities 1,000,000
Authority, Pooled Loan Program Revenue Notes, 3.70%
CP (John Hopkins University)/(Sanwa Bank Ltd, Osaka
LIQ), Mandatory Tender 12/1/1997
1,000,000 Maryland Health & Higher Educational Facilities 1,000,000
Authority, Pooled Loan Program Revenue Notes, 3.75%
CP (John Hopkins University)/(Sanwa Bank Ltd, Osaka
LIQ), Mandatory Tender 12/9/1997
1,000,000 (b)Maryland State Community Development 1,000,000
Administration, (PA-170) Weekly VRDNs (Merrill
Lynch Capital Services, Inc. LIQ)
850,000 Maryland State Community Development 850,000
Administration, (Series 1990A) Weekly VRDNs
(College Estates)/(First National Bank of Maryland,
Baltimore LOC)
</TABLE>
MARYLAND MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MARYLAND--CONTINUED
$2,000,000 Maryland State Energy Financing Administration, $ 2,000,000
Annual Tender Solid Waste Disposal Revenue
Refunding Bonds, 4.10% TOBs (Nevamar
Corp.)/(International Paper Co. GTD), Optional
Tender 9/1/1998
3,000,000 Maryland State Energy Financing Administration, 3,000,000
IDRB (Series 1988) Weekly VRDNs (Morningstar
Foods, Inc.)/(Nationsbank of Texas, N.A. LOC)
2,000,000 Maryland State Energy Financing Administration, 2,000,000
Limited Obligation Variable Rate Demand Revenue
Bonds (Series 1996) Weekly VRDNs (Keywell
L.L.C.)/(Bank of America Illinois LOC)
1,500,000 Maryland State IDFA, (Series 1996) Weekly VRDNs 1,500,000
(Chesapeake Biological Labs, Inc.)/ (First Union
National Bank, Charlotte, N.C. LOC)
3,300,000 Maryland State IDFA, Economic Development Revenue 3,300,000
Refunding Bonds (Series 1994) Weekly VRDNs
(Johnson Controls, Inc.)
2,300,000 Montgomery County, MD, EDR Weekly VRDNs (U.S. 2,300,000
Pharmacopeial Convention Facility)/ (Chase
Manhattan Bank N.A., New York LOC)
1,100,000 Prince George's County, MD, IDRB (Series 1993), 1,100,000
4.05% TOBs (International Paper Co.)/
(International Paper Co. GTD), Optional Tender
7/15/1998
1,000,000 Washington Suburban Sanitation District, MD, Sewer 1,018,431
Disposal (1st Series), 6.70% Bonds, 7/1/1998
1,500,000 Wicomico County, MD, EDRB (Series 1994) Weekly 1,500,000
VRDNs (Field Container Co. L.P.)/ (Northern Trust
Co., Chicago, IL LOC)
TOTAL 42,326,681
PUERTO RICO--6.3%
1,500,000 Puerto Rico Government Development Bank, 3.70% CP, 1,500,000
Mandatory Tender 12/11/1997
1,400,000 Puerto Rico Industrial, Medical & Environmental 1,400,000
PCA, (Series 1983A), 3.80% TOBs (Reynolds Metals
Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional
Tender 9/1/1998
TOTAL 2,900,000
TOTAL INVESTMENTS (AMORTIZED COST)(C) $45,226,681
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 56.2% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based On Total Market Value (Unaudited)
FIRST TIER SECOND TIER
93.15% 6.85%
(b) Denotes a restricted security which is subject to
restrictions on resale under Federal Securities laws. At October 31, 1997, these
securities amounted to $1,000,000 which represents 2.2% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($45,574,763) at October 31, 1997.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities CP --Commercial Paper EDC
- --Economic Development Commission EDR --Economic Development Revenue EDRB
- --Economic Development Revenue Bonds GTD --Guaranty IDA --Industrial Development
Authority IDRB --Industrial Development Revenue Bond IDFA --Industrial
Development Finance Authority LIQ --Liquidity Agreement LOC --Letter of Credit
PCA --Pollution Control Authority PCR --Pollution Control Revenue PLC --Public
Limited Company TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MARYLAND MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at amortized cost and value $ 45,226,681
Cash 111,476
Income receivable 240,035
Receivable for shares sold 870
Deferred organizational costs 20,414
Deferred expenses 12,454
Total assets 45,611,930
LIABILITIES:
Payable for shares redeemed $ 1,230
Income distribution payable 22,080
Accrued expenses 13,857
Total liabilities 37,167
Net Assets for 45,574,763 shares outstanding $ 45,574,763
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$45,574,763 / 45,574,763 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MARYLAND MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,712,349
EXPENSES:
Investment advisory fee $ 229,262
Administrative personnel and services fee 125,000
Custodian fees 5,121
Transfer and dividend disbursing agent fees and expenses 25,193
Directors'/Trustees' fees 161
Auditing fees 12,544
Legal fees 6,986
Portfolio accounting fees 41,882
Shareholder services fee 114,631
Share registration costs 18,659
Printing and postage 9,209
Insurance premiums 2,531
Taxes 83
Miscellaneous 15,169
Total expenses 606,431
Waivers and reimbursements--
Waiver of investment advisory fee $ (229,262)
Waiver of shareholder services fee (4,585)
Reimbursement of other operating expenses (56,543)
Total waivers and reimbursements (290,390)
Net expenses 316,041
Net investment income $ 1,396,308
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MARYLAND MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,396,308 $ 1,465,068
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,396,308) (1,465,068)
SHARE TRANSACTIONS--
Proceeds from sale of shares 143,776,753 135,836,347
Net asset value of shares issued to shareholders in payment of 1,155,608 1,324,055
distributions declared
Cost of shares redeemed (153,643,401) (134,274,793)
Change in net assets resulting from share transactions (8,711,040) 2,885,609
Change in net assets (8,711,040) 2,885,609
NET ASSETS:
Beginning of period 54,285,803 51,400,194
End of period $ 45,574,763 $ 54,285,803
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MARYLAND MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Maryland Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the personal income taxes imposed by the State of Maryland and Maryland
municipalities consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on the restricted security held at October 31, 1997 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Maryland State Community Development
Administration (PA-170) 8/29/1997 $1,000,000
</TABLE>
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value). At October 31, 1997, capital paid-in aggregated
$45,574,763. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996(a)
<S> <C> <C>
Shares sold 143,776,753 135,836,347
Shares issued to shareholders in payment of distributions 1,155,608 1,324,055
declared
Shares redeemed (153,643,401) (134,274,793)
Net change resulting from share transactions (8,711,040) 2,885,609
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets.The Adviser may voluntarily choose to waive any portion
of its fee and/or reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and/or reimbursement at any time
at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $45,952 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $3,466 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $88,395,000 and $88,715,000, respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 71.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 19.0% of total investments. REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MARYLAND
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Maryland
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets and the financial
highlights (see page 2 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Maryland Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
MARYLAND MUNICIPAL CASH TRUST 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
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MARYLAND MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Prospectus
December 31, 1997
A Portfolio of Federated Municipal Trust,
an Open-End Management Investment Company
Federated Securities Corp., Distributor
Cusip 314229774
G00105-01-A (12/97)
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MARYLAND MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Maryland Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
MARYLAND MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
Cusip 314229774
G00105-02-B (12/97)
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Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-245-7400
www.federatedinvestors.com
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
Maryland Investment Risks 2
Investment Limitations 3
Selling Short and Buying on Margin 3
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Underwriting 3
Concentration of Investments 3
Investing in Illiquid Securities 4
Investing for Control 4
Investing in Options 4
Regulatory Compliance 4
Federated Municipal Trust Management 5
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
Investment Advisory Services 9
Investment Adviser 9
Advisory Fees 10
Brokerage Transactions 10
Other Services 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 11
Shareholder Services 11
Determining Net Asset Value 11
Redemption in Kind 11
Massachusetts Partnership Law 12
The Fund's Tax Status 12
Performance Information 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 13
Total Return 13
Performance Comparisons 13
Economic and Market Information 14
About Federated Investors 14
Mutual Fund Market 14
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and Bank Broker/ Dealer Subsidiaries 15
Appendix 16
</TABLE>
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
MARYLAND INVESTMENT RISKS
The Fund invests in obligations of Maryland issuers which results in the Fund's
performance being subject to risks associated with the overall conditions
present within Maryland (the "State"). The following information is a brief
summary of the recent prevailing economic conditions and a general summary of
the State's financial status. This information is based on official statements
related to securities that have been offered by Maryland issuers and from other
sources believed to be reliable but should not be relied upon as a complete
description of all relevant information.
Maryland's economy differs from that of the nation, with a heavier dependence on
government, services (particularly business, engineering, and management
services) and trade than the typical state, and less reliance on manufacturing.
The State's economic structure reflects its proximity to Washington, DC with
one-tenth of civilian wages paid in the State coming from federal agencies
located in Maryland and 10% of Maryland's personal income originating from jobs
in the District of Columbia. Although this structure adds a degree of
concentration risk, the wages earned by Maryland's federal workers also
contributes to the State's above average income and below average unemployment.
Although the Maryland economy is rebounding from the recession in the early
1990s, the pace of job growth has trailed that of the nation. This dampened
growth is largely attributable to cutbacks in federal spending, particularly in
defense related programs. State finances are well-managed with strong
administrative control exercised by the State Board of Public Works, which is
comprised of the governor, treasurer, and controller. The revenue stream is well
diversified, relying heavily on sales, income, and a variety of other taxes
(including a state property tax). The finances of the State have largely
improved since the early 1990s. The State went from a significant deficit
position in 1992 to operating surpluses in recent years. Although Maryland
remains one of the nation's more indebted states, it has kept borrowing within
constraints recommended by the State's Debt Affordability Committee. About 60%
of the State's debt service is supported by a dedicated state property tax. The
Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of the value of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of its total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
nonpublicly issued Maryland municipal securities or temporary investments or
enter into repurchase agreements in accordance with its investment objective,
policies, and limitations, and its Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities, if as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center--Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board. As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc. SHARE
OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of the Maryland Municipal Cash Trust: David Ritz,
Potomac, Maryland, owned approximately 5,353,349 shares (11.22%); United
Communications Group, Rockville, Maryland, owned approximately 4,713,107 shares
(9.88%). TRUSTEE COMPENSATION <TABLE> <CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife and his son, J.
Christopher Donahue. The adviser shall not be liable to the Trust, the Fund,or
any shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its contract
with the Trust. ADVISORY FEES For its advisory services, Federated Management
receives an annual investment advisory fee as described in the prospectus. For
the fiscal years ended October 31, 1997, 1996, and 1995, the adviser earned
$229,262, $237,399, and $296,327, respectively, of which $229,262, $237,399, and
$295,202, respectively, were waived. BROKERAGE TRANSACTIONS When selecting
brokers and dealers to handle the purchase and sale of portfolio instruments,
the adviser looks for prompt execution of the order at a favorable price. In
working with dealers, the adviser will generally use those who are recognized
dealers in specific portfolio instruments, except when a better price and
execution of the order can be obtained elsewhere. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to guidelines
established by the Trustees. The adviser may select brokers and dealers who
offer brokerage and research services. These services may be furnished directly
to the Fund or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by the
adviser or its affiliates in advising the Fund and other accounts. To the extent
that receipt of these services may supplant services for which the adviser or
its affiliates might otherwise have paid, it would tend to reduce their
expenses. The adviser and its affiliates exercise reasonable business judgment
in selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided. During the fiscal years ended October 31, 1997,
1996, and 1995, the Fund paid no brokerage commissions. Although investment
decisions for the Fund are made independently from those of the other accounts
managed by the adviser, investments of the type the Fund may make may also be
made by those other accounts. When the Fund and one or more other accounts
managed by the adviser are prepared to invest in, or desire to dispose of, the
same security, available investments or opportunities for sales will be
allocated in a manner believed by the adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to participate
in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $125,000, $125,000,
and $125,000, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will benefit
by: (1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts. For the fiscal year ended
October 31, 1997, the Fund earned shareholder service fees in the amount of
$114,631, of which $110,046 was paid to financial institutions. DETERMINING NET
ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true. The
Fund's use of the amortized cost method of valuing portfolio instruments depends
on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated
by the Securities and Exchange Commission under the Investment Company Act of
1940. Under the Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value. REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The Fund's yield for the seven-day period ended October 31, 1997, was
3.18%. EFFECTIVE YIELD The effective yield is calculated by compounding the
unannualized base period return by: adding 1 to the base period return; raising
the sum to the 365/7th power; and subtracting 1 from the result. The Fund's
effective yield for the seven-day period ended October 31, 1997, was 3.23%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 47.10% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt. The Fund's tax-equivalent yield for the seven-day period ended October
31, 1997, was 6.01%. TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields. <TABLE> <CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MARYLAND
INCLUDING LOCAL INCOME TAX
COMBINED FEDERAL, STATE, AND COUNTY INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
22.50% 35.50% 38.50% 43.50% 47.10%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN: 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN: 24,650 59,750 124,650 271,050 $271,050
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
2.00% 2.58% 3.10% 3.25% 3.54% 3.78%
2.50% 3.23% 3.88% 4.07% 4.42% 4.73%
3.00% 3.87% 4.65% 4.88% 5.31% 5.67%
3.50% 4.52% 5.43% 5.69% 6.19% 6.62%
4.00% 5.16% 6.20% 6.50% 7.08% 7.56%
4.50% 5.81% 6.98% 7.32% 7.96% 8.51%
5.00% 6.45% 7.75% 8.13% 8.85% 9.45%
5.50% 7.10% 8.53% 8.94% 9.73% 10.40%
6.00% 7.74% 9.30% 9.76% 10.62% 11.34%
6.50% 8.39% 10.08% 10.57% 11.50% 12.29%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used
in calculating the taxable yield equivalent.
Furthermore, additional state and local taxes paid on comparable taxable
investments were not used to increase federal deductions. The local income tax
rate is assumed to be 50% of the state rate for all counties excluding Allegany,
Baltimore, Montgomery, Prince George's Queen Anne's, St. Mary's, Somerset,
Talbot, Wicomico, and Worchester.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions. The Fund's average
annual total returns for the one-year period ended October 31, 1997, and for the
period from May 9, 1994 (date of initial public investment), through October 31,
1997, were 3.10% and 3.13%, respectively. PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute. ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume. In the money market sector, Federated Investors gained
prominence in the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered the use
of the amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money market
fund. As of December 31, 1996, Federated Investors managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime and 21 municipal with assets approximating $28.0 billion, $12.8 billion
and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios. 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 $3.5 trillion to the more than 6,000 funds available.* Federated Investors,
through its subsidiaries, distributes mutual funds for a variety of investment
applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division. BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BOND (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
CALIFORNIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of California Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term California municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of California, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income taxes imposed by the
state of California consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
California Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Confirmations and Account Statements 8
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Service Shares 11
Financial Statements 12
Report of Independent Public Accountants 22
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee (after waiver)(1) 0.01%
12b-1 Fee None
Total Other Expenses 0.25%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.26%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholders services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1998. The total operating
expenses were 0.21% for the fiscal year ended October 31, 1997, and would have
been 0.95% absent the voluntary waivers of a portion of the management fee and
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 3
3 Years $ 8
5 Years $15
10 Years $33
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.44% 2.24%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.21% 0.20%*
Net investment income 3.45% 3.33%*
Expense waiver/reimbursement(c) 0.74% 0.90%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,956 $20,089
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 4, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for banks and other
institutions that hold assets for individuals, trusts, estates, or partnerships
as a convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term California municipal securities. The Fund may
not be a suitable investment for retirement plans or for non-California
taxpayers because it invests in municipal securities of that state. A minimum
initial investment of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
California municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. As a matter of investment
policy, which cannot be changed without shareholder approval, at least 80% of
the Fund's annual interest income will be exempt from federal regular income tax
and California state income tax. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
California and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and California state
income tax imposed upon non- corporate taxpayers ("California Municipal
Securities"). Examples of California Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in California Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
California Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain California
Municipal Securities is subject to the federal alternative minimum tax.
CALIFORNIA MUNICIPAL SECURITIES
California Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
California Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of California Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on California Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of California Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of California
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in California Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
California Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of California Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. The Fund's concentration in California
Municipal Securities may entail a greater level of risk than other types of
money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of its total assets to secure such
borrowings. These investment limitations cannot be changed without shareholder
approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 9:00 a.m. Pacific time (12:00 noon Eastern
time), 10:00 a.m. Pacific time (1:00 p.m. Eastern time), and as of the close of
trading (normally 1:00 p.m. Pacific time or 4:00 p.m. Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 10:00
a.m. Pacific time (1:00 p.m. Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 12:00 noon Pacific time (3:00 p.m. Eastern time) in order to begin
earning dividends that same day. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: California Municipal Cash Trust
- -- Institutional Shares; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: California Municipal Cash Trust -- Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
9:00 a.m. Pacific time (12:00 noon Eastern time) will be wired the same day to
the shareholder's account at a domestic commercial bank which is a member of the
Federal Reserve System, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests on
holidays when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at the
telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
12:00 noon Pacific time (3:00 p.m. Eastern time) begin earning dividends that
day. Shares purchased by check begin earning dividends the day after the check
is converted into federal funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Repub & Co., Los Angeles, California, owned 32.71% of
the voting securities of the Institutional Shares of the Fund, and, therefore,
may, for certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
California. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
CALIFORNIA TAXES
Under existing California laws, distributions made by the Fund will not be
subject to California individual income taxes to the extent that such
distributions qualify as exempt-interest dividends under the California Revenue
and Taxation Code, and provided further that at the close of each quarter, at
least 50 percent of the value of the total assets of the Fund consists of
obligations the interest on which is exempt from California taxation under
either the Constitution or laws of California or the Constitution or laws of the
United States. The Fund will furnish its shareholders with a written note
designating exempt- interest dividends within 60 days after the close of its
taxable year. Conversely, to the extent that distributions made by the Fund are
derived from other types of obligations, such distributions will be subject to
California individual income taxes.
Dividends of the Fund are not exempt from the California taxes payable by
corporations.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
banks and other institutions and are subject to a minimum initial investment of
$25,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan, but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1997 1996 1995 1994(A) 1994 1993 1992 1991 1990 1989(B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.03 0.03 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03
Net realized
loss on
investment -- -- (0.01) -- -- -- -- -- -- --
Total from 0.03 0.03 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03
investment
operations
Capital
Contributions -- -- 0.01 -- -- -- -- -- -- --
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.03) (0.03) (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(C) 3.19% 3.22% 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.46% 0.49% 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%*
Net investment
income 3.13% 3.17% 3.33% 2.71%* 2.03% 2.00% 2.76% 4.19% 5.27% 5.86%*
Expense waiver/
reimbursement(d) 0.49% 0.62% 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%*
SUPPLEMENTAL DATA
Net assets, end
of period (000
omitted) $234,764 $132,159 $96,534 $81,563 $74,707$104,322 $59,709 $56,754 $50,391 $36,628
</TABLE>
* Computed on an annualized basis.
(a) For the one month ended October 31, 1994. The Fund changed its fiscal
year-end from September 30, to October 31, beginning September 30, 1994.
(b) Reflects operations for the period from March 15, 1989 (date of initial
public investment) to September 30, 1989.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
CALIFORNIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.5%
CALIFORNIA--86.9%
$ 2,500,000 California Educational Facilities Authority, (Series 1997B), $ 2,505,544
4.125% TOBs (University of Southern California), Mandatory
Tender 10/1/1998
12,595,000 (b)California Educational Facilities Authority, PA-160 Weekly 12,595,000
VRDNs (Stanford University)/ (Merrill Lynch Capital Services,
Inc. LIQ)
1,100,000 California Health Facilities Financing Authority Weekly VRDNs 1,100,000
(FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ)
3,200,000 California PCFA, (Series 1984A) Weekly VRDNs (Homestate 3,200,000
Mining Co.)/(Bank of Nova Scotia, Toronto LOC)
4,500,000 California School Cash Reserve Program Authority, (Series
B), 4,505,140 4.50% TRANs (MBIA INS), 12/19/1997
4,850,000 California State Public Works Board, (1997 Series A), 5.00% 4,871,407
Bonds (California Community Colleges), 4/1/1998
4,960,000 (b)California State, CDC Municipal Products, Inc. (Series
4,960,000 1996L) Weekly VRDNs (FGIC INS)/ (CDC Municipal
Products, Inc.
LIQ)
6,000,000 California State, GO Tax Exempt Notes, 3.80% CP (Bayerische 6,000,000
Landesbank Girozentrale, Credit Suisse First Boston,
Landesbank Hessen-Thueringen, Frankfurt, Morgan Guaranty
Trust Co., New York and Westdeutsche Landesbank Girozentrale
LIQs), Mandatory Tender 12/15/1997
4,700,000 California State, GO Tax Exempt Notes, 3.80% CP (Bayerische 4,700,000
Landesbank Girozentrale, Credit Suisse First Boston,
Landesbank Hessen-Thueringen, Frankfurt, Morgan Guaranty
Trust Co., New York and Westdeutsche Landesbank Girozentrale
LIQs), Mandatory Tender 12/22/1997
10,500,000 California Statewide Communities Development Authority Weekly 10,500,000
VRDNs (Memorial Health Services)/(ABN AMRO Bank N.V.,
Amsterdam LIQ)
3,400,000 California Statewide Communities Development Authority, 3,400,000
(Series A) Weekly VRDNs (Barton Memorial Hospital)/(Banque
Nationale de Paris LOC)
5,800,000 Central Unified School District, CA, Certificates of 5,800,000
Participation (1995 Financing Project) Weekly VRDNs (Union
Bank of California LOC)
4,000,000 Central Valley Schools, CA Financing Authority, 4.50% TRANs, 4,018,907
8/27/1998
4,000,000 (b)Clipper CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs 4,000,000
(California Rural Home Mortgage Finance Authority)/(MBIA
INS)/(State Street Bank and Trust Co. LIQ)
5,200,000 Contra Costa, CA Water District, (Series A), 3.60% CP 5,200,000
(Westdeutsche Landesbank Girozentrale LIQ), Mandatory Tender
11/20/1997
2,000,000 El Cerrito, CA, 4.25% TRANs, 6/30/1998 2,004,384
7,100,000 Glendale, CA, (Series 1984A), 3.55% (Reliance Development 7,100,000
Company, Inc.)/(Barclays Bank PLC, London LOC), 11/14/1997
4,000,000 Huntington Beach, CA, Multifamily Housing Revenue Refunding 4,000,000
Bonds (1996 Series A) Weekly VRDNs (Huntington Breakers
Apartments)/(Sumitomo Bank Ltd., Osaka LOC)
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
CALIFORNIA--CONTINUED
$ 5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly $ 5,000,000
VRDNs (Channel Point Apartments)/ (Union Bank of California
LOC)
1,600,000 Loomis, CA Union Elementary School District, 4.45% TRANs, 1,607,251
9/10/1998
6,550,000 Los Angeles County, CA, 4.50% TRANs, 6/30/1998 6,575,910
10,000,000 Los Angeles, CA Department of Water & Power, Electric
Plant 10,000,000
Short-Term Revenue Certificates, 3.60% CP (Bank of Nova
Scotia, Toronto and Toronto-Dominion Bank LOCs), Mandatory
Tender 12/10/1997
7,875,000 Los Angeles, CA Wastewater System, 3.80% CP (Morgan Guaranty 7,875,000
Trust Co., New York and Union Bank of Switzerland, Zurich
LOCs), Mandatory Tender 1/14/1998
5,060,000 Metropolitan Water District, Southern California Waterworks, 5,095,766
5.00% Bonds, 7/1/1998
2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs 2,000,000
(Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC)
5,000,000 Oakland, CA Unified School District, 4.25% TRANs, 10/28/1998 5,019,042
6,000,000 Oceanside, CA Community Development Commission, (Series 1985) 6,000,000
Weekly VRDNs (Shadow Way Apartments)/(Bank One, Arizona N.A.
LOC)
8,000,000 Orange County, CA Housing Authority, Variable Rate Demand 8,000,000
Apartment Development Revenue Bonds, (Series BB of 1985)
Weekly VRDNs (Costa Mesa Partners)/(Chase Manhattan Bank
N.A., New York LOC)
5,200,000 Orange County, CA IDA, (Series 1985B - Niguel Summit II) 5,200,000
Weekly VRDNs (Hon Development Corp.)/(Bank of America NT and
SA, San Francisco LOC)
5,800,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The 5,800,000
Lakes)/(Citibank NA, New York LOC)
3,000,000 Orange County, CA Local Transportation Authority, (Series 3,009,532
1992), 4.90% Bonds (FGIC INS), 2/15/1998
2,600,000 (b)Orange County, CA Local Transportation Authority, Trust 2,600,000
Receipts (Series FR 1997-8) Weekly VRDNs (FGIC INS)/(Bank of
New York, New York LIQ)
10,330,000 (b)Oxnard Harbor District, CA, (Series 1995 II), PT-105 10,330,000
Weekly VRDNs (Asset Guaranty INS)/ (Credit Suisse First
Boston, Inc. LIQ)
13,250,000 (b)Pitney Bowes Credit Corp. Leasetops Trust, Leasetops 13,250,000
Certificates (Series 1996A) Weekly VRDNs (San Diego County,
CA, Regional Communications System)/(Pitney Bowes Credit
Corp. LIQ)/(Bayerische Landesbank Girozentrale LOC)
1,570,000 Placer County, CA Office of Education, 4.45% TRANs,
9/10/1998 1,577,115 1,025,000 Placer Hills, CA Union Elementary
School District, 4.45% 1,029,645
TRANs, 9/10/1998
4,000,000 Regents of University of California, (Series A), 3.70% CP 4,000,000
(Bank of America NT and SA, San Francisco, Bank of Montreal,
Caisse Nationale De Credit Agricole, Paris, Canadian Imperial
Bank of Commerce, Toronto and Societe Generale, Paris LIQs),
Mandatory Tender 12/17/1997
8,000,000 Regents of University of California, (Series A), 3.75% CP 8,000,000
(Bank of America NT and SA, San Francisco, Bank of Montreal,
Caisse Nationale De Credit Agricole, Paris, Canadian Imperial
Bank of Commerce, Toronto and Societe Generale, Paris LIQs),
Mandatory Tender 11/14/1997
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
CALIFORNIA--CONTINUED
$ 9,247,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA $ 9,247,000
Public Facility Finance)/ (Commerzbank AG, Frankfurt and
National Westminster Bank, PLC, London LOCs)
3,000,000 Riverside County, CA, 4.50% TRANs, 6/30/1998 3,010,467
900,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A) 900,000
Weekly VRDNs (Toronto-Dominion Bank LOC)
5,000,000 Sacramento County, CA HDA, Multifamily Housing Revenue 5,000,000
Refunding Bonds (1996 Series C) Weekly VRDNs (River Terrace
Apartments)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC)
1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs 1,700,000
(Woodview Apartments)/(Swiss Bank Corp., Basle LOC)
3,215,000 (b)San Francisco, CA Redevelopment Finance Agency,
(PT-125) 3,215,000 Weekly VRDNs (Northridge Cooperative
Homes)/(MBIA INS)/(Commerzbank AG, Frankfurt LIQ)
10,000,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) 10,000,000
Weekly VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto
LOC)
4,080,000 (b)San Francisco, CA Redevelopment Finance Agency, CDC 4,080,000
Municipal Products, Inc. (Series 1997T) Weekly VRDNs
(Northridge Cooperative Homes)/(MBIA INS)/(CDC Municipal
Products, Inc. LIQ)
400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA 400,000
Electric System)/(National Westminster Bank, PLC, London LOC)
510,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, 510,000
Inc.)/(Nationsbank of Texas, N.A. LOC)
TOTAL 240,492,110
PUERTO RICO--12.6%
15,190,000 (b)Puerto Rico Electric Power Authority, Merlots (Series 15,190,000
1997S) Weekly VRDNs (MBIA INS)/ (Corestates Bank N.A.,
Philadelphia, PA LIQ)
7,735,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 7,735,000
Tender 12/11/1997
10,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 10,000,000
Tender 12/11/1997
2,040,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 2,040,000
Tender 1/14/1998
TOTAL 34,965,000
TOTAL INVESTMENTS (AT AMORTIZED COST(C) $ 275,457,110
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows application regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based On Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to
restrictions on resale under Federal Securities laws. At October 31, 1997, these
securities amounted to $70,220,000 which represents 25% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($276,720,167) at October 31, 1997.
The following acronym(s) are used throughout this portfolio:
CP --Commercial Paper FGIC --Financial Guaranty Insurance Company GO --General
Obligation HDA --Hospital Development Authority IDA --Industrial Development
Authority INS --Insured LIQ --Liquidity Agreement LOCs --Letters of Credit LOC
- --Letter of Credit MBIA --Municipal Bond Investors Assurance PCFA --Pollution
Control Finance Authority PLC --Public Limited Company TOBs --Tender Option
Bonds TRANs --Tax and Revenue Anticipation Notes VRDNs --Variable Rate Demand
Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
CALIFORNIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 275,457,110
Cash 147,123
Income receivable 1,718,036
Receivable for shares sold 24,637
Total assets 277,346,906
LIABILITIES:
Payable for shares redeemed $ 174,220
Income distribution payable 356,270
Accrued expenses 96,249
Total liabilities 626,739
Net Assets for 276,720,167 shares outstanding $ 276,720,167
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$234,764,373 / 234,764,373 shares outstanding $1.00
INSTITUTIONAL SHARES:
$41,955,794 / 41,955,794 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
CALIFORNIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,552,473
EXPENSES:
Investment advisory fee $ 1,047,530
Administrative personnel and services fee 167,256
Custodian fees 12,146
Transfer and dividend disbursing agent fees and 91,980
expenses
Directors'/Trustees' fees 1,104
Auditing fees 13,044
Legal fees 7,526
Portfolio accounting fees 68,390
Shareholder services fee--Institutional Service Shares 449,026
Shareholder services fee--Institutional Shares 74,743
Share registration costs 41,429
Printing and postage 14,541
Insurance premiums 4,092
Miscellaneous 4,571
Total expenses 1,997,378
Waivers--
Waiver of investment advisory fee $ (1,026,075)
Waiver of shareholder services fee--Institutional (74,743)
Shares
Total waivers (1,100,818)
Net expenses 896,560
Net investment income $ 6,655,913
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
CALIFORNIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,655,913 $ 3,198,194
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Service Shares (5,624,269) (2,906,707)
Institutional Shares (1,031,644) (291,487)
Change in net assets resulting from distributions to (6,655,913) (3,198,194)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 905,107,252 477,899,575
Net asset value of shares issued to shareholders in payment of 3,335,040 907,904
distributions declared
Cost of shares redeemed (783,969,559) (423,093,903)
Change in net assets resulting from share transactions 124,472,733 55,713,576
Change in net assets 124,472,733 55,713,576
NET ASSETS:
Beginning of period 152,247,434 96,533,858
End of period $ 276,720,167 $ 152,247,434
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
CALIFORNIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of California Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
California consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Clipper CA Tax-Exempt Trust 6/28/1996 $4,000,000
California State, CDC Municipal 12/12/1996 4,960,000
Products, Inc.
California Educational Facilities 10/24/1997 12,595,000
Authority
Orange County, CA 3/25/1997 2,600,000
Oxnard Harbor District, CA 4/3/1997 10,330,000
Pitney Bowes Credit Corp. Leasetops 2/7/1997-2/19/1997 13,250,000
Trust
San Francisco, CA Redevelopment 8/29/1997 3,215,000
Finance Agency
San Francisco, CA Redevelopment 9/4/1997 4,080,000
Finance Agency
Puerto Rico Electric Power Authority 9/18/1997-10/7/1997 15,190,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
Institutional Service Shares 1997 1996
<S> <C> <C>
Shares sold 809,738,300 422,168,406
Shares issued to shareholders in payment of distributions 3,272,742 907,892
declared
Shares redeemed (710,405,505) (387,451,320)
Net change resulting from Institutional Service Share 102,605,537 35,624,978
transactions
<CAPTION>
YEAR ENDED OCTOBER 31,
Institutional Shares
1997 1996(A)
<S> <C> <C>
Shares sold 95,368,952 55,731,169
Shares issued to shareholders in payment
of distributions declared 62,298 12
Shares redeemed (73,564,054) (35,642,583)
Net change resulting from Institutional Share transactions 21,867,196 20,088,598
Net change resulting from Fund share transactions 124,472,733 55,713,576
</TABLE>
(a) For the period from March 4, 1996 (date of initial public investment) to
October 31, 1996.
At October 31, 1997, capital paid-in aggregated $276,720,167.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
Fserv maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $380,640,000 and $376,800,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 60% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 11% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(CALIFORNIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
CALIFORNIA MUNICIPAL CASH TRUST
INSTITUTIONAL 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
CALIFORNIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End
Management Investment Company
Federated Securities Corp., Distributor
[Graphic]
Cusip 314229675
G00300-01-IS (12/97)
CALIFORNIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of California Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term California municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of California, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and the personal income taxes
imposed by the state of California consistent with stability of principal and
liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Institutional Service Shares 2
General Information 3 Investment Information 3 Investment Objective 3
Investment Policies 3 California Municipal Securities 5 Investment Risks 5
Investment Limitations 5 Fund Information 6 Management of the Fund 6
Distribution of Institutional Service Shares 6 Administration of the Fund 7 Net
Asset Value 7 How to Purchase Shares 7 Purchasing Shares Through a Financial
Institution 7 Purchasing Shares by Wire 7 Purchasing Shares by Check 8 Special
Purchase Features 8 How to Redeem Shares 8 Redeeming Shares Through a Financial
Institution 8 Redeeming Shares by Telephone 8 Redeeming Shares by Mail 8
Special Redemption Features 9 Account and Share Information 9 Dividends 9
Capital Gains 9 Confirmations and Account Statements 9 Accounts with Low
Balances 9 Voting Rights 9 Tax Information 10 Federal Income Tax 10 State and
Local Taxes 10 Other Classes of Shares 10 Performance Information 11 Financial
Highlights--Institutional Shares 12 Financial Statements 13 Report of
Independent Public Accountants 23
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption proceeds, as applicable)
None Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee (after waiver)(1) 0.01%
12b-1 Fee None
Total Other Expenses 0.50%
Shareholder Services Fee 0.25%
Total Operating Expenses(2) 0.51%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1998. The total operating
expenses were 0.46% for the fiscal year ended October 31, 1997, and would have
been 0.95% absent the voluntary waiver of a portion of the management fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 5
3 Years $16
5 Years $29
10 Years $64
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1997 1996 1995 1994(A) 1994 1993 1992 1991 1990 1989(B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.03 0.03 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03
Net realized
loss on
investment -- -- (0.01) -- -- -- -- -- -- --
Total from 0.03 0.03 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03
investment
operations
Capital
Contributions -- -- 0.01 -- -- -- -- -- -- --
LESS
DISTRIBUTIONS
Distributions
from net
investment
income (0.03) (0.03) (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(C) 3.19% 3.22% 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.46% 0.49% 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%*
Net investment
income 3.13% 3.17% 3.33% 2.71%* 2.03% 2.00% 2.76% 4.19% 5.27% 5.86%*
Expense waiver/
reimbursement(d) 0.49% 0.62% 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%*
SUPPLEMENTAL DATA
Net assets, end
of period (000
omitted) $234,764 $132,159 $96,534 $81,563 $74,707$104,322 $59,709 $56,754 $50,391 $36,628
</TABLE>
* Computed on an annualized basis.
(a) For the one month ended October 31, 1994. The Fund changed its fiscal
year-end from September 30, to October 31, beginning September 30, 1994.
(b) Reflects operations for the period from March 15, 1989 (date of initial
public investment) to September 30, 1989.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for financial
institutions acting in a fiduciary or agency capacity as a convenient means of
accumulating an interest in a professionally managed portfolio investing in
short-term California municipal securities. The Fund may not be a suitable
investment for retirement plans or for non-California taxpayers because it
invests in municipal securities of that state. A minimum initial investment of
$25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the state of
California consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
California municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. As a matter of investment
policy, which cannot be changed without shareholder approval, at least 80% of
the Fund's annual interest income will be exempt from federal regular income tax
and California state income tax. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
California and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and California state
income tax imposed upon non- corporate taxpayers ("California Municipal
Securities"). Examples of California Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in California Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
California Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain California
Municipal Securities is subject to the federal alternative minimum tax.
CALIFORNIA MUNICIPAL SECURITIES
California Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
California Municipal Securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of California Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on California Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of California Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of California
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in California Municipal Securities which are repayable out
of revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
California Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of California Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. The Fund's concentration in California
Municipal Securities may entail a greater level of risk than other types of
money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of its total assets to secure such
borrowings. These investment limitations cannot be changed without shareholder
approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 9:00 a.m. Pacific time (12:00 noon Eastern
time), 10:00 a.m. Pacific time (1:00 p.m. Eastern time), and as of the close of
trading (normally 1:00 p.m. Pacific time or 4:00 p.m. Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$25,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 10:00
a.m. Pacific time (1:00 p.m. Eastern time), to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 12:00 noon Pacific time (3:00 p.m. Eastern time), in order to begin
earning dividends that same day. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: California Municipal Cash
Trust--Institutional Service Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: California Municipal Cash Trust -- Institutional Service Shares. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn from the shareholder's checking
account at an Automated Clearing House ("ACH") member and invested in Fund
shares. Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
9:00 a.m. Pacific time (12:00 noon Eastern time), will be wired the same day to
the shareholder's account at a domestic commercial bank which is a member of the
Federal Reserve System, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Under limited circumstances
arrangements may be made with the distributor for same-day payment of proceeds,
without that day's dividend, for redemption requests received before 11:00 a.m.
Pacific time (2:00 p.m. Eastern time). Proceeds from redeemed shares purchased
by check or through ACH will not be wired until that method of payment has
cleared. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about telephone
redemptions on days when wire transfers are restricted should be directed to
your shareholder services representative at the telephone number listed on your
account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMBBank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
12:00 noon Pacific time (3:00 p.m. Eastern time) begin earning dividends that
day. Shares purchased by check begin earning dividends the day after the check
is converted into federal funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Repub & Co., Los Angeles, California, owned 32.71% of
the voting securities of the Institutional Shares of the Fund, and, therefore,
may, for certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
California. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
CALIFORNIA TAXES
Under existing California laws, distributions made by the Fund will not be
subject to California individual income taxes to the extent that such
distributions qualify as exempt-interest dividends under the California Revenue
and Taxation Code, so long as at the close of each quarter, at least 50 percent
of the value of the total assets of the Fund consists of obligations the
interest on which is exempt from California taxation under either the
Constitution or laws of California or the Constitution or laws of the United
States. The Fund will furnish its shareholders with a written note designating
exempt-interest dividends within sixty days after the close of its taxable year.
Conversely, to the extent that distributions made by the Fund are derived from
other types of obligations, such distributions will be subject to California
individual income taxes.
Dividends of the Fund are not exempt from the California taxes payable by
corporations.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to banks and other
financial institutions and are subject to a minimum initial investment of
$25,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan, but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.44% 2.24%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.21% 0.20%*
Net investment income 3.45% 3.33%*
Expense waiver/reimbursement(c) 0.74% 0.90%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,956 $20,089
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 4, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
CALIFORNIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.5%
CALIFORNIA--86.9%
$ 2,500,000 California Educational Facilities Authority, (Series 1997B), $ 2,505,544
4.125% TOBs (University of Southern California), Mandatory
Tender 10/1/1998
12,595,000 (b)California Educational Facilities Authority, PA-160 Weekly 12,595,000
VRDNs (Stanford University)/ (Merrill Lynch Capital Services,
Inc. LIQ)
1,100,000 California Health Facilities Financing Authority Weekly VRDNs 1,100,000
(FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ)
3,200,000 California PCFA, (Series 1984A) Weekly VRDNs (Homestate 3,200,000
Mining Co.)/(Bank of Nova Scotia, Toronto LOC)
4,500,000 California School Cash Reserve Program Authority, (Series
B), 4,505,140 4.50% TRANs (MBIA INS), 12/19/1997
4,850,000 California State Public Works Board, (1997 Series A), 5.00% 4,871,407
Bonds (California Community Colleges), 4/1/1998
4,960,000 (b)California State, CDC Municipal Products, Inc. (Series
4,960,000 1996L) Weekly VRDNs (FGIC INS)/ (CDC Municipal
Products, Inc.
LIQ)
6,000,000 California State, GO Tax Exempt Notes, 3.80% CP (Bayerische 6,000,000
Landesbank Girozentrale, Credit Suisse First Boston,
Landesbank Hessen-Thueringen, Frankfurt, Morgan Guaranty
Trust Co., New York and Westdeutsche Landesbank Girozentrale
LIQs), Mandatory Tender 12/15/1997
4,700,000 California State, GO Tax Exempt Notes, 3.80% CP (Bayerische 4,700,000
Landesbank Girozentrale, Credit Suisse First Boston,
Landesbank Hessen-Thueringen, Frankfurt, Morgan Guaranty
Trust Co., New York and Westdeutsche Landesbank Girozentrale
LIQs), Mandatory Tender 12/22/1997
10,500,000 California Statewide Communities Development Authority Weekly 10,500,000
VRDNs (Memorial Health Services)/(ABN AMRO Bank N.V.,
Amsterdam LIQ)
3,400,000 California Statewide Communities Development Authority, 3,400,000
(Series A) Weekly VRDNs (Barton Memorial Hospital)/(Banque
Nationale de Paris LOC)
5,800,000 Central Unified School District, CA, Certificates of 5,800,000
Participation (1995 Financing Project) Weekly VRDNs (Union
Bank of California LOC)
4,000,000 Central Valley Schools, CA Financing Authority, 4.50% TRANs, 4,018,907
8/27/1998
4,000,000 (b)Clipper CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs 4,000,000
(California Rural Home Mortgage Finance Authority)/(MBIA
INS)/(State Street Bank and Trust Co. LIQ)
5,200,000 Contra Costa, CA Water District, (Series A), 3.60% CP 5,200,000
(Westdeutsche Landesbank Girozentrale LIQ), Mandatory Tender
11/20/1997
2,000,000 El Cerrito, CA, 4.25% TRANs, 6/30/1998 2,004,384
7,100,000 Glendale, CA, (Series 1984A), 3.55% (Reliance Development 7,100,000
Company, Inc.)/(Barclays Bank PLC, London LOC), 11/14/1997
4,000,000 Huntington Beach, CA, Multifamily Housing Revenue Refunding 4,000,000
Bonds (1996 Series A) Weekly VRDNs (Huntington Breakers
Apartments)/(Sumitomo Bank Ltd., Osaka LOC)
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
CALIFORNIA--CONTINUED
$ 5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly $ 5,000,000
VRDNs (Channel Point Apartments)/ (Union Bank of California
LOC)
1,600,000 Loomis, CA Union Elementary School District, 4.45% TRANs, 1,607,251
9/10/1998
6,550,000 Los Angeles County, CA, 4.50% TRANs, 6/30/1998 6,575,910
10,000,000 Los Angeles, CA Department of Water & Power, Electric
Plant 10,000,000
Short-Term Revenue Certificates, 3.60% CP (Bank of Nova
Scotia, Toronto and Toronto-Dominion Bank LOCs), Mandatory
Tender 12/10/1997
7,875,000 Los Angeles, CA Wastewater System, 3.80% CP (Morgan Guaranty 7,875,000
Trust Co., New York and Union Bank of Switzerland, Zurich
LOCs), Mandatory Tender 1/14/1998
5,060,000 Metropolitan Water District, Southern California Waterworks, 5,095,766
5.00% Bonds, 7/1/1998
2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs 2,000,000
(Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC)
5,000,000 Oakland, CA Unified School District, 4.25% TRANs, 10/28/1998 5,019,042
6,000,000 Oceanside, CA Community Development Commission, (Series 1985) 6,000,000
Weekly VRDNs (Shadow Way Apartments)/(Bank One, Arizona N.A.
LOC)
8,000,000 Orange County, CA Housing Authority, Variable Rate Demand 8,000,000
Apartment Development Revenue Bonds, (Series BB of 1985)
Weekly VRDNs (Costa Mesa Partners)/(Chase Manhattan Bank
N.A., New York LOC)
5,200,000 Orange County, CA IDA, (Series 1985B - Niguel Summit II) 5,200,000
Weekly VRDNs (Hon Development Corp.)/(Bank of America NT and
SA, San Francisco LOC)
5,800,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The 5,800,000
Lakes)/(Citibank NA, New York LOC)
3,000,000 Orange County, CA Local Transportation Authority, (Series 3,009,532
1992), 4.90% Bonds (FGIC INS), 2/15/1998
2,600,000 (b)Orange County, CA Local Transportation Authority, Trust 2,600,000
Receipts (Series FR 1997-8) Weekly VRDNs (FGIC INS)/(Bank of
New York, New York LIQ)
10,330,000 (b)Oxnard Harbor District, CA, (Series 1995 II), PT-105 10,330,000
Weekly VRDNs (Asset Guaranty INS)/ (Credit Suisse First
Boston, Inc. LIQ)
13,250,000 (b)Pitney Bowes Credit Corp. Leasetops Trust, Leasetops 13,250,000
Certificates (Series 1996A) Weekly VRDNs (San Diego County,
CA, Regional Communications System)/(Pitney Bowes Credit
Corp. LIQ)/(Bayerische Landesbank Girozentrale LOC)
1,570,000 Placer County, CA Office of Education, 4.45% TRANs,
9/10/1998 1,577,115 1,025,000 Placer Hills, CA Union Elementary
School District, 4.45% 1,029,645
TRANs, 9/10/1998
4,000,000 Regents of University of California, (Series A), 3.70% CP 4,000,000
(Bank of America NT and SA, San Francisco, Bank of Montreal,
Caisse Nationale De Credit Agricole, Paris, Canadian Imperial
Bank of Commerce, Toronto and Societe Generale, Paris LIQs),
Mandatory Tender 12/17/1997
8,000,000 Regents of University of California, (Series A), 3.75% CP 8,000,000
(Bank of America NT and SA, San Francisco, Bank of Montreal,
Caisse Nationale De Credit Agricole, Paris, Canadian Imperial
Bank of Commerce, Toronto and Societe Generale, Paris LIQs),
Mandatory Tender 11/14/1997
</TABLE>
CALIFORNIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
CALIFORNIA--CONTINUED
$ 9,247,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA $ 9,247,000
Public Facility Finance)/ (Commerzbank AG, Frankfurt and
National Westminster Bank, PLC, London LOCs)
3,000,000 Riverside County, CA, 4.50% TRANs, 6/30/1998 3,010,467
900,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A) 900,000
Weekly VRDNs (Toronto-Dominion Bank LOC)
5,000,000 Sacramento County, CA HDA, Multifamily Housing Revenue 5,000,000
Refunding Bonds (1996 Series C) Weekly VRDNs (River Terrace
Apartments)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC)
1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs 1,700,000
(Woodview Apartments)/(Swiss Bank Corp., Basle LOC)
3,215,000 (b)San Francisco, CA Redevelopment Finance Agency,
(PT-125) 3,215,000 Weekly VRDNs (Northridge Cooperative
Homes)/(MBIA INS)/(Commerzbank AG, Frankfurt LIQ)
10,000,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) 10,000,000
Weekly VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto
LOC)
4,080,000 (b)San Francisco, CA Redevelopment Finance Agency, CDC 4,080,000
Municipal Products, Inc. (Series 1997T) Weekly VRDNs
(Northridge Cooperative Homes)/(MBIA INS)/(CDC Municipal
Products, Inc. LIQ)
400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA 400,000
Electric System)/(National Westminster Bank, PLC, London LOC)
510,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, 510,000
Inc.)/(Nationsbank of Texas, N.A. LOC)
TOTAL 240,492,110
PUERTO RICO--12.6%
15,190,000 (b)Puerto Rico Electric Power Authority, Merlots (Series 15,190,000
1997S) Weekly VRDNs (MBIA INS)/ (Corestates Bank N.A.,
Philadelphia, PA LIQ)
7,735,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 7,735,000
Tender 12/11/1997
10,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 10,000,000
Tender 12/11/1997
2,040,000 Puerto Rico Government Development Bank, 3.80% CP, Mandatory 2,040,000
Tender 1/14/1998
TOTAL 34,965,000
TOTAL INVESTMENTS (AT AMORTIZED COST(C) $ 275,457,110
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, and F-2 by Fitch Investors Service, Inc. are all
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows application regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based On Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Denotes a restricted security which is subject to
restrictions on resale under Federal Securities laws. At October 31, 1997, these
securities amounted to $70,220,000 which represents 25% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($276,720,167) at October 31, 1997.
The following acronym(s) are used throughout this portfolio:
CP --Commercial Paper FGIC --Financial Guaranty Insurance Company GO --General
Obligation HDA --Hospital Development Authority IDA --Industrial Development
Authority INS --Insured LIQ --Liquidity Agreement LOCs --Letters of Credit LOC
- --Letter of Credit MBIA --Municipal Bond Investors Assurance PCFA --Pollution
Control Finance Authority PLC --Public Limited Company TOBs --Tender Option
Bonds TRANs --Tax and Revenue Anticipation Notes VRDNs --Variable Rate Demand
Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
CALIFORNIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 275,457,110
Cash 147,123
Income receivable 1,718,036
Receivable for shares sold 24,637
Total assets 277,346,906
LIABILITIES:
Payable for shares redeemed $ 174,220
Income distribution payable 356,270
Accrued expenses 96,249
Total liabilities 626,739
Net Assets for 276,720,167 shares outstanding $ 276,720,167
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$234,764,373 / 234,764,373 shares outstanding $1.00
INSTITUTIONAL SHARES:
$41,955,794 / 41,955,794 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
CALIFORNIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,552,473
EXPENSES:
Investment advisory fee $ 1,047,530
Administrative personnel and services fee 167,256
Custodian fees 12,146
Transfer and dividend disbursing agent fees and 91,980
expenses
Directors'/Trustees' fees 1,104
Auditing fees 13,044
Legal fees 7,526
Portfolio accounting fees 68,390
Shareholder services fee--Institutional Service Shares 449,026
Shareholder services fee--Institutional Shares 74,743
Share registration costs 41,429
Printing and postage 14,541
Insurance premiums 4,092
Miscellaneous 4,571
Total expenses 1,997,378
Waivers--
Waiver of investment advisory fee $ (1,026,075)
Waiver of shareholder services fee--Institutional (74,743)
Shares
Total waivers (1,100,818)
Net expenses 896,560
Net investment income $ 6,655,913
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
CALIFORNIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,655,913 $ 3,198,194
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Service Shares (5,624,269) (2,906,707)
Institutional Shares (1,031,644) (291,487)
Change in net assets resulting from distributions to (6,655,913) (3,198,194)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 905,107,252 477,899,575
Net asset value of shares issued to shareholders in payment of 3,335,040 907,904
distributions declared
Cost of shares redeemed (783,969,559) (423,093,903)
Change in net assets resulting from share transactions 124,472,733 55,713,576
Change in net assets 124,472,733 55,713,576
NET ASSETS:
Beginning of period 152,247,434 96,533,858
End of period $ 276,720,167 $ 152,247,434
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
CALIFORNIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of California Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
California consistent with stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Clipper CA Tax-Exempt Trust 6/28/1996 $4,000,000
California State, CDC Municipal 12/12/1996 4,960,000
Products, Inc.
California Educational Facilities 10/24/1997 12,595,000
Authority
Orange County, CA 3/25/1997 2,600,000
Oxnard Harbor District, CA 4/3/1997 10,330,000
Pitney Bowes Credit Corp. Leasetops 2/7/1997-2/19/1997 13,250,000
Trust
San Francisco, CA Redevelopment 8/29/1997 3,215,000
Finance Agency
San Francisco, CA Redevelopment 9/4/1997 4,080,000
Finance Agency
Puerto Rico Electric Power Authority 9/18/1997-10/7/1997 15,190,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
Institutional Service Shares 1997 1996
<S> <C> <C>
Shares sold 809,738,300 422,168,406
Shares issued to shareholders in payment of distributions 3,272,742 907,892
declared
Shares redeemed (710,405,505) (387,451,320)
Net change resulting from Institutional Service Share 102,605,537 35,624,978
transactions
<CAPTION>
YEAR ENDED OCTOBER 31,
Institutional Shares
1997 1996(A)
<S> <C> <C>
Shares sold 95,368,952 55,731,169
Shares issued to shareholders in payment
of distributions declared 62,298 12
Shares redeemed (73,564,054) (35,642,583)
Net change resulting from Institutional Share transactions 21,867,196 20,088,598
Net change resulting from Fund share transactions 124,472,733 55,713,576
</TABLE>
(a) For the period from March 4, 1996 (date of initial public investment) to
October 31, 1996.
At October 31, 1997, capital paid-in aggregated $276,720,167.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
Fserv maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $380,640,000 and $376,800,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 60% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 11% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(CALIFORNIA MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
California Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
CALIFORNIA MUNICIPAL CASH TRUST
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
CALIFORNIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End
Management Investment Company
Federated Securities Corp., Distributor
[Graphic]
Cusip 314229766
G00329-01-SS (12/97)
CALIFORNIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
Institutional Service Shares
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectuses of
California Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
CALIFORNIA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
STATEMENT DATED DECEMBER 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-245-7400
www.federatedinvestors.com
Cusip 314229675
Cusip 314229766
G00329-02 (12/97)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
California Investment Risks 2
Limits on Taxing and Spending Authority 2
Investment Limitations 3
Selling Short and Buying on Margin 3
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Underwriting 3
Concentration of Investments 3
Investments in Any One Issuer 4
Investing in Illiquid Securities 4
Investing for Control 4
Investing in Options 4
Regulatory Compliance 4
Federated Municipal Trust Management 5
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
Investment Advisory Services 9
Investment Adviser 9
Advisory Fees 10
Brokerage Transactions 10
Other Services 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 11
Shareholder Services 11
Determining Net Asset Value 11
Redemption in Kind 11
Massachusetts Partnership Law 12
The Fund's Tax Status 12
Performance Information 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
About Federated Investors 14
Mutual Fund Market 15
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and Bank Broker/ Dealer Subsidiaries 15
Appendix 16
</TABLE>
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
CALIFORNIA INVESTMENT RISKS
LIMITS ON TAXING AND SPENDING AUTHORITY
Developments in California ( the "State" or "California") which constrain the
taxing and spending authority of California governmental entities could
adversely affect the ability of such entities to meet their interest and/or
principal payment obligations on securities they have issued or will issue. The
following information constitutes only a brief summary and is not intended as a
complete description.
In 1978, a statewide referendum approved Proposition 13, an amendment to the
California Constitution limiting both the valuation of real property for
property tax purposes and the power of local taxing authorities to increase real
property tax revenues. To provide revenue to local governments, legislation was
enacted shortly thereafter providing for the redistribution to local governments
of the State's then existing surplus in its General Fund, reallocation of
revenues to local governments, and assumption by the State of certain local
government obligations. More recent California legislation has, however, reduced
State assistance payments to local governments and reallocated a portion of such
payments to the State's General Fund.
In 1979, California voters amended the California Constitution again by passing
Article XIII B, which imposes an appropriations limit on the spending authority
of certain State and local government entities. The State's appropriations limit
is based on its 1978-1979 fiscal year authorizations to expend proceeds of taxes
and is adjusted annually to reflect changes in cost of living and population and
transfer of financial responsibility from one governmental unit to another. If a
California governmental entity raises revenues beyond its appropriations limit,
the excess must be returned to the entity's taxpayers within the two subsequent
fiscal years, generally by a tax credit, refund, or temporary suspension of tax
rates or fee schedules. These spending limitations do not, however, apply to the
debt service on obligations existing or legally authorized as of January 1,
1979, or on bonded indebtedness thereafter approved by the voters.
In November 1988, California voters approved Proposition 98. This initiative
requires that revenues in excess of amounts permitted to be spent, and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 4%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
Any funds allocated to the State school fund shall cause the appropriation
limits to be annually increased for any such allocation made in the prior year.
Prop. 98 also requires the State to provide a minimum level of funding for
public schools and community colleges. The initiative permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.
On September 28, 1995, the California Supreme Court upheld the constitutionality
of Proposition 62. This referendum was approved by the State's voters in 1986,
but not enforced due to previous judicial decisions. Prop. 62 requires a
two-thirds voter approval for special taxes and a new simple majority approval
for general municipal purposes for general law cities and counties. The future
effect of Proposition 62 on the financial performance of California local
governments and on note and debt security is unclear. It is possible that court
challenges, based on Prop. 62, to taxes raised or imposed after 1986, may reduce
general municipal revenues available for financing municipal operations and
services, including repayment of tax anticipation notes and other forms of debt
such as certificates of participation.
In November of 1996, the California voters approved Proposition 218, which
further limits the ability of local governments to raise certain taxes without
direct voter approval. For general taxes the locality must seek a majority and
for special taxes a two-thirds majority. The long-term effects on municipalities
with respect to Prop. 218 are yet to be determined. Prop. 218 extends the voter
approval to the 90-plus charter cities in California.
The effects of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remain unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future.
ECONOMIC DEVELOPMENTS
California's economy continues to improve. Strong growth in high technology,
entertainment, and trade have diversified employment and offset the effects of
restructuring in defense and aerospace; however, unemployment still lags
national levels by more than 1%.
The stronger state economy has been beneficial to the state's finances. Revenues
have exceeded forecasts, but mandated expenditures on education, prisons, and
infrastructure will keep operating margins tight.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
non-publicly issued California municipal securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, limitations and the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry, or
in industrial development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash, or
certain money market instruments, securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
INVESTMENTS IN ANY ONE ISSUER
With respect to securities comprising 75% of its assets, the Fund will not
invest more than 10% of its total assets in the securities of any one issuer
(except cash and cash items, repurchase agreements collateralized by U.S.
government securities, and U.S. government obligations.)
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, will be
considered a separate issuer if its assets and revenues are separate from those
of the government body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user. If in the
case of an industrial development bond or government-issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
INVESTING 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 NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center--Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the California Municipal Cash Trust:
Repub & Co., Imperial Trust Company, Los Angeles, California, owned
approximately 12,783,000 shares (32.71%); SBT & Co., for the benefit of various
accounts, La Jolla, California, owned approximately 6,149,936 shares (15.74%);
Key Trust Co., Cleveland, Ohio, owned approximately 4,100,000 shares (10.49%);
Palsan Company, Sumitomo Bank of California, San Francisco, California, owned
approximately 4,007,652 shares (10.26%); Union Safe Deposit Bank, Stockton,
California, owned approximately 3,725,758 shares (9.53%); Santa Monica Bank,
Santa Monica, California, owned approximately 3,393,915 shares (8.69%); and Bank
of Stockton, Stockton, California, owned approximately 2,935,369 shares (7.51%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the California Municipal Cash
Trust: Piper Jaffray, Inc., for the exclusive benefit of its customers,
Minneapolis, Minnesota, owned approximately 40,092,057 shares (17.76%); Swiss
Bank Corporation, Omnibus Reinvest Account, New York, New York, owned
approximately 22,352,564 shares (9.90%); Wells Fargo Bank, Calabasas,
California, owned approximately 12,308,001 shares (5.45%); and Citibank N.A.,
Long Island City, New York, owned approximately 12,041,609 shares (5.33%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and Chairman and Trustee 56 other
investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and Trustee 56 other
investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and Trustee 56 other
investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and Trustee 56 other
investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and President and Trustee 8 other
investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and Trustee 56 other investment
companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and Trustee 56 other
investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and Trustee 56 other
investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and Trustee 56 other
investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and Trustee 56 other
investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and Trustee 56 other
investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and Trustee 56 other
investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $1,047,530, $501,955, and $465,758,
respectively, of which $1,026,075, $501,955, and $402,906, respectively, were
waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, Institutional Service Shares of
the Fund paid no brokerage commissions. During the fiscal year ended October 31,
1997, and for the period from March 4, 1996 (date of initial public investment)
to October 31, 1996, Institutional Shares of the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $167,256, $145,082,
and $125,000, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to:
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that the
Fund will benefit by: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, the Fund earned shareholder service
fees for Institutional Shares and Institutional Service Shares in the amounts of
$74,743 and $449,026, respectively, none of which was paid to financial
institutions for Institutional Shares and all of which was paid to financial
institutions for Institutional Service Shares.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months; invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yield for Institutional
Shares and Institutional Service Shares was 3.44% and 3.19%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yield for
Institutional Shares and Institutional Service Shares was 3.50% and 3.24%,
respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 48.90% tax rate (the maximum combined effective
federal and state rates for individuals) and assuming that the income is 100%
tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yield for
Institutional Shares and Institutional Service Shares was 6.73% and 6.24%,
respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
23.00% 37.30% 40.30% 45.30% 48.90%
SINGLE $1 - $24,651 - $59,751 - $124,651 - OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.95% 2.39% 2.51% 2.74% 2.94%
2.00% 2.60% 3.19% 3.35% 3.66% 3.91%
2.50% 3.25% 3.99% 4.19% 4.57% 4.89%
3.00% 3.90% 4.78% 5.03% 5.48% 5.87%
3.50% 4.55% 5.58% 5.86% 6.40% 6.85%
4.00% 5.19% 6.38% 6.70% 7.31% 7.83%
4.50% 5.84% 7.18% 7.54% 8.23% 8.81%
5.00% 6.49% 7.97% 8.38% 9.14% 9.78%
5.50% 7.14% 8.77% 9.21% 10.05% 10.76%
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF CALIFORNIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
21.00% 37.30% 40.30% 45.30% 48.90% 48.90%
JOINT $1 - $41,201 - $99,601 - $151,751 - $271,051 OVER
RETURN 41,200 99,600 151,750 271,050 439,744 $439,744
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.90% 2.39% 2.51% 2.74% 2.94% 2.94%
2.00% 2.53% 3.19% 3.35% 3.66% 3.91% 3.91%
2.50% 3.16% 3.99% 4.19% 4.57% 4.89% 4.89%
3.00% 3.80% 4.78% 5.03% 5.48% 5.87% 5.87%
3.50% 4.43% 5.58% 5.86% 6.40% 6.85% 6.85%
4.00% 5.06% 6.38% 6.70% 7.31% 7.83% 7.83%
4.50% 5.70% 7.18% 7.54% 8.23% 8.81% 8.81%
5.00% 6.33% 7.97% 8.38% 9.14% 9.78% 9.78%
5.50% 6.96% 8.77% 9.21% 10.05% 10.76% 10.76%
Note: The maximum marginal tax rate for
each bracket was used in calculating the taxable yield equivalent. Furthermore,
additional state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The charts above are for illustrative purposes only. They are not indicators of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year and five-year periods ended October 31, 1997, and for the
period from March 15, 1989 (date of initial public investment) through October
31, 1997, the average annual total returns were 3.19%, 2.78% and 3.45%,
respectively, for Institutional Service Shares.
For the one-year period ended October 31, 1997, and for the period from March 4,
1996 (date of initial public investment) through October 31, 1997, the average
annual total returns were 3.44% and 3.44%, respectively, for Institutional
Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime and 21 municipal with
assets approximating $28.0 billion, $12.8 billion and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATIONS RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
Cash II Shares
PROSPECTUS
The Cash II Shares of New York Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term New York municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of New York, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and personal income taxes imposed by New York State and New
York municipalities consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights - Cash II Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
New York Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Cash II Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 7
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 10
Federal Income Tax 10
State and Local Taxes 10
Other Classes of Shares 10
Performance Information 11
Financial Highlights - Institutional Service Shares 12
Financial Statements 13
Report of Independent Public Accountants 26
<TABLE>
<CAPTION>
SUMMARY OF FUND EXPENSES
CASH II SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption proceeds, as applicable)
None Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.31%
12b-1 Fee (after waiver)(2) 0.00%
Total Other Expenses 0.40%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 0.71%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1
fee. The distributor can terminate this voluntary waiver at any time at its sole
discretion. The maximum 12b-1 fee is 0.25%.
(3) The total operating expenses would have been 1.05% absent the voluntary
waiver of a portion of the management fee and the voluntary waiver of the 12b-1
fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Cash II Shares of the Trust will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Fund Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 year $ 7
3 years $23
5 years $40
10 years $88
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993** 1992 1991(A)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 3.07% 3.05% 3.37% 2.15% 1.98% 2.86% 2.20%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.71% 0.71% 0.71% 0.71% 0.71% 0.73% 0.46%*
- -----------------------------------------
Net investment income 3.01% 3.02% 3.20% 2.19% 1.96% 2.46% 4.08%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.34% 0.36% 0.36% 0.21% 0.17% -- --
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $21,402 $25,571 $14,439 $134,051 $58,884 $4,641 $56
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
** Prior to November 9, 1992, the Fund provided three classes of shares.
(a)Reflects operations for the period from April 25, 1991 (date of initial
public investment) to October 31, 1991.
(b)Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Cash II Shares and
Institutional Service Shares. This prospectus relates only to Cash II Shares of
the Fund, which are designed to provide a cash management vehicle for certain
customers of financial institutions which would include corporations and
municipalities, as well as larger individual accounts, seeking a high level of
cash management services from the participating institution. The Fund may not be
a suitable investment for retirement plans or for non-New York taxpayers because
it invests in municipal securities of that state. A minimum initial investment
of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by New York State and
New York municipalities consistent with stability of principal. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by New York State and New York municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of New
York and its political subdivisions and financing authorities, and obligations
of other states, territories, and possessions of the United States, including
the District of Columbia, and any political subdivision or financing authority
of any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by New York State and New York municipalities ("New York Municipal
Securities"). Examples of New York Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in New York Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying New York Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain New York
Municipal Securities is subject to the federal alternative minimum tax.
NEW YORK MUNICIPAL SECURITIES
New York Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New York Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of New York Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on New York Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of New York Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of New York
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in New York Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
New York Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of New York Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in New York Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of its total assets to secure such
borrowings. 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. These investment limitations cannot be changed without
shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II
Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.30% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- ----- -------------------
0.15% on the first $250 million
0.13% on the next $250 million
0.10% on the next $250 million
0.08% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash II
Shares from the value of Fund assets attributable to Cash II Shares, and
dividing the remainder by the number of Cash II Shares outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 3:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New York
Municipal Cash Trust - Cash II Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to New York Municipal Cash Trust - Cash II Shares. Please include an account
number on the check. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day after the check
is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper
form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than New
York. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
NEW YORK TAXES
Under existing New York laws, distributions made by the Fund will not be subject
to New York State or New York City personal income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal Revenue
Code, and represent interest income attributable to obligations issued by the
State of New York and its political subdivisions as well as certain other
obligations, the interest on which is exempt from New York State and New York
City personal income taxes, such as, for example, certain obligations of the
Commonwealth of Puerto Rico. Conversely, to the extent that distributions made
by the Fund are derived from other types of obligations, such distributions will
be subject to New York State and New York City personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that will
be exempt from New York State and New York City personal income taxes. However,
the Fund will report to shareholders at least annually what percentage of the
dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business taxes to the same extent that they are exempt from the New York City
personal income taxes.
Dividends paid by the Fund are not excluded from net income in determining New
York State or New York City franchise taxes on corporations or financial
institutions.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service Shares
that are sold primarily to banks and other institutions that hold assets for
individuals, trusts, estates, or partnerships. Institutional Service Shares are
sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder
Services Agreement. Investments in Institutional Service Shares are subject to a
minimum initial investment of $25,000 over a 90-day period.
Cash II Shares and Institutional Service Shares are subject to certain of the
same expenses.
Expense differences, however, between Cash II Shares and Institutional Service
Shares may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993*
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.03 0.04 0.02 0.02
- ----------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net
investment income (0.03) (0.03) (0.04) (0.02) (0.02)
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 3.26% 3.24% 3.56% 2.35% 2.16%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.53% 0.53% 0.54% 0.52% 0.54%
- ----------------------------------------
Net investment income 3.21% 3.18% 3.49% 2.31% 2.14%
- ----------------------------------------
Expense waiver/
reimbursement(b) 0.52% 0.54% 0.53% 0.13% 0.17%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period
(000 omitted) $424,174 $305,533 $276,149 $236,580 $274,357
- ----------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1991 1990 1989 1988
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.04 0.05 0.06 0.05
- ----------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net
investment income (0.03) (0.04) (0.05) (0.06) (0.05)
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 3.01% 4.59% 5.51% 5.70% 4.66%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.57% 0.52% 0.54% 0.55% 0.51%
- ----------------------------------------
Net investment income 2.99% 4.48% 5.36% 5.56% 4.57%
- ----------------------------------------
Expense waiver/
reimbursement(b) -- -- -- -- --
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period
(000 omitted) $164,492 $191,616 $197,213 $245,542 $212,786
- ----------------------------------------
</TABLE>
* Prior to November 9, 1992, the Fund provided three classes of shares.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
NEW YORK MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 99.2%
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- 97.5%
- -----------------------------------------------------------------------------------------------------------------
$9,195,000 (b)Albany County Airport Authority, NY, Trust Receipts (Series 1997 FR/RI-7) Weekly VRDNs
(FSA INS)/(Bank of New York, New York LIQ) $9,195,000
-----------------------------------------------------------------------------------------------
945,000 Albany, NY IDA, 3.95% TOBs (146 State Street)/(Fleet Bank of New York LOC), Optional Tender
12/1/97 945,000
-----------------------------------------------------------------------------------------------
2,000,000 Brockport Village, NY, 4.125% BANs, 2/27/1998 2,002,147
-----------------------------------------------------------------------------------------------
4,000,000 Canisteo Central School District, NY, 4.00% BANs, 1/2/1998 4,001,697
-----------------------------------------------------------------------------------------------
1,500,000 Cattaraugus County, NY IDA, (Series 1996A) Weekly VRDNs (Gier's Farm Service, Inc. Project)/
(Key Bank of New York LOC) 1,500,000
-----------------------------------------------------------------------------------------------
1,800,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/(KeyBank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------------------
3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine Corp.)/(Wells Fargo Bank,
N.A. LOC) 3,900,000
-----------------------------------------------------------------------------------------------
5,000,000 Chautauqua County, NY, 4.00% TANs, 12/18/1997 5,001,869
-----------------------------------------------------------------------------------------------
980,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine Midland Bank N.A., Buffalo, NY LOC) 980,000
-----------------------------------------------------------------------------------------------
710,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (Specialty Retailers, Inc.)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 710,000
-----------------------------------------------------------------------------------------------
3,380,000 Colonie, NY IDA, 3.90% TOBs (800 North Pearl Associates)/(Fleet Bank of New York LOC),
Optional Tender 12/1/1997 3,380,000
-----------------------------------------------------------------------------------------------
4,720,000 Corinth, NY IDA, Solid Waste Disposal Revenue Bonds (Series A), 3.80% TOBs (International
Paper Co.)/(International Paper Co. GTD), Optional Tender 3/1/1998 4,720,000
-----------------------------------------------------------------------------------------------
1,300,000 Dutchess County, NY IDA, Series 1995 Weekly VRDNs (Laerdal Medical Corp.)/(Bank of New
York, New York LOC) 1,300,000
-----------------------------------------------------------------------------------------------
2,250,000 Erie County, NY IDA, (Series A) Weekly VRDNs (Gemcor)/(Marine Midland Bank N.A., Buffalo,
NY LOC) 2,250,000
-----------------------------------------------------------------------------------------------
5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs (Servotronics, Inc. Project)/
(Fleet Bank of New York LOC) 5,000,000
-----------------------------------------------------------------------------------------------
6,000,000 Farmingdale, NY Union Free School District, 4.25% TANs, 6/29/1998 6,013,342
-----------------------------------------------------------------------------------------------
1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES
Chateaugay)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 1,800,000
-----------------------------------------------------------------------------------------------
2,900,000 Freeport, NY, 4.125% BANs, 11/25/1997 2,900,536
-----------------------------------------------------------------------------------------------
945,000 Fulton County, NY IDA, 3.95% TOBs (Gates Mills Inc.)/(Fleet Bank of New York LOC),
Optional Tender 12/1/1997 945,000
-----------------------------------------------------------------------------------------------
1,400,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern Industrial Park, Inc.)/
(Fleet Bank of New York LOC) 1,400,000
-----------------------------------------------------------------------------------------------
4,080,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's Kitchen)/(Bank of New York,
New York LOC) 4,080,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$2,500,000 Herkimer County, NY, 3.875% BANs, 12/12/1997 $2,500,609
-----------------------------------------------------------------------------------------------
7,435,000 Hilton Central School District, NY, 3.90% BANs, 11/25/1997 7,436,082
-----------------------------------------------------------------------------------------------
1,880,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison, NY Upstate Metals)/
(Fleet Bank of New York LOC) 1,880,000
-----------------------------------------------------------------------------------------------
4,700,000 Madison County, NY IDA, (Series A) Weekly VRDNs (Owl Wire and Cable )/
(KeyBank, N.A. LOC) 4,700,000
-----------------------------------------------------------------------------------------------
4,525,000 Malone, NY Central School District, 4.00% RANs, 6/26/1998 4,528,409
-----------------------------------------------------------------------------------------------
15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust Weekly VRDNs
(Marine Midland New York Trust)/(Marine Midland Bank N.A., Buffalo, NY LOC) 15,000,000
-----------------------------------------------------------------------------------------------
5,000,000 (b)Metropolitan Transportation Authority, New York, MERLOTS (Series 1997 C-2)
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ)/(FGIC LOC) 5,000,000
-----------------------------------------------------------------------------------------------
3,300,000 (b)Monroe County, NY Airport Authority, (PT-98) Weekly VRDNs (Greater Rochester
International Airport)/(MBIA INS)/(Bayerische Hypotheken-Und Wechsel-Bank Ag LIQ) 3,300,000
-----------------------------------------------------------------------------------------------
4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts
(Series 1996-CMC1A) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000
-----------------------------------------------------------------------------------------------
4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts
(Series 1996-CMC1B) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000
-----------------------------------------------------------------------------------------------
150,001 New York City, NY IDA Weekly VRDNs (David Rosen Bakers
Supply)/(Ford Motor Credit Corp.
LIQ)/(Chase Manhattan Bank N.A., New York LOC) 150,001
-----------------------------------------------------------------------------------------------
39,562,850 New York City, NY IDA, (Series 1995A) Weekly VRDNs (Brooklyn Navy Yard Cogeneration
Partners, L.P. Project)/(Bank of America NT and SA, San Francisco LOC) 39,562,850
-----------------------------------------------------------------------------------------------
7,175,000 (b)New York City, NY IDA, CDC 1997H - Class A Certificates Weekly VRDNs
(Japan Airlines Co.)/(FSA INS)/(CDC Municipal Products, Inc. LIQ) 7,175,000
-----------------------------------------------------------------------------------------------
3,600,000 New York City, NY IDA, CDC Municipal Products, Inc. (Series 1996H) Weekly VRDNs
(Japan Airlines Co.)/(FSA INS)/(CDC Municipal Products, Inc. LIQ) 3,600,000
-----------------------------------------------------------------------------------------------
9,335,000 (b)New York City, NY IDA, Class A Certificates (Series
CDC-1997E) Weekly VRDNs
(Japan Airlines Co.)/(FSA INS)/(CDC Municipal Products, Inc. LIQ) 9,335,000
-----------------------------------------------------------------------------------------------
8,000,000 (b)New York City, NY, (PA-156) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ)/
(Merrill Lynch Capital Services, Inc. LOC) 8,000,000
-----------------------------------------------------------------------------------------------
5,475,000 (b)New York State Dormitory Authority, PA-60 (Series 1993) Weekly VRDNs
(Rochester General Hospital)/(FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 5,475,000
-----------------------------------------------------------------------------------------------
6,245,000 (b)New York State Dormitory Authority, PT-128 (Series 1997),
3.90% TOBs (Rosalind & Joseph Gurwin Jewish Geriatric Center
of Long Island, Inc.)/
(AMBAC INS)/(Credit Suisse First Boston, Inc. LIQ) 9/30/1998 6,245,000
-----------------------------------------------------------------------------------------------
6,000,000 New York State Dormitory Authority, PT-130 (Series 1997), 3.90% TOBs
(United Health Services Hospitals, Inc.)/(AMBAC INS)/(Credit Suisse First Boston, Inc. LIQ),
Mandatory Tender 10/1/1998 6,000,000
-----------------------------------------------------------------------------------------------
5,445,000 (b)New York State Energy Research & Development Authority, (PA-144) Weekly VRDNs
(Long Island Lighting Co.)/(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch Capital
Services, Inc. LOC) 5,445,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$8,000,000 New York State Energy Research & Development Authority, (Series 1985A), 3.60% TOBs
(Long Island Lighting Co.)/(Deutsche Bank, AG LOC), Optional Tender 3/1/1998 $8,000,000
-----------------------------------------------------------------------------------------------
3,000,000 New York State Energy Research & Development Authority, (Series 1993A) Weekly VRDNs
(Long Island Lighting Co.)/(Toronto-Dominion Bank LOC) 3,000,000
-----------------------------------------------------------------------------------------------
5,200,000 (b)New York State Environmental Facilities Corp., Trust Receipts (Series 1997 FR/RI-4)
Weekly VRDNs (New York City Municipal Water Finance Authority)/(Bank of New York,
New York LIQ) 5,200,000
-----------------------------------------------------------------------------------------------
65,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/(Chase Manhattan Bank N.A.,
New York LOC) 65,000
-----------------------------------------------------------------------------------------------
2,500,000 (b)New York State HFA, Health Facilities Revenue Bonds (PA-143) Weekly VRDNs (New York City,
NY)/(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC) 2,500,000
-----------------------------------------------------------------------------------------------
1,390,000 New York State Job Development Authority Weekly VRDNs (New York State GTD)/
(Sumitomo Bank Ltd., Osaka LOC) 1,390,000
-----------------------------------------------------------------------------------------------
955,000 New York State Job Development Authority Weekly VRDNs (New York State GTD)/
(Sumitomo Bank Ltd., Osaka LOC) 955,000
-----------------------------------------------------------------------------------------------
1,805,000 New York State Job Development Authority, (Series C-1) 4.25%, 1/2/1998
(New York State GTD)/(Sumitomo Bank Ltd., Osaka LOC) 1,805,000
-----------------------------------------------------------------------------------------------
880,000 New York State Job Development Authority, (Series D-1) 4.15%, 1/2/1998
(New York State GTD)/(Sumitomo Bank Ltd., Osaka LOC) 880,000
-----------------------------------------------------------------------------------------------
2,025,000 New York State Job Development Authority, (Series E-1) 4.15%, 1/2/1998
(New York State GTD)/(Sumitomo Bank Ltd., Osaka LOC) 2,025,000
-----------------------------------------------------------------------------------------------
4,500,000 (b)New York State Medical Care Facilities Finance Agency, Hospital & Nursing Home
Mortgage Revenue Bonds (1994 Series C) (PA-89) Weekly VRDNs (FHA INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 4,500,000
-----------------------------------------------------------------------------------------------
3,700,000 (b)New York State Mortgage Agency, (Series PA-29) Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ) 3,700,000
-----------------------------------------------------------------------------------------------
4,215,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (PA-87) Weekly
VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 4,215,000
-----------------------------------------------------------------------------------------------
3,245,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series PT-15B)
Weekly VRDNs (Commerzbank AG, Frankfurt LIQ) 3,245,000
-----------------------------------------------------------------------------------------------
6,500,000 (b)New York State Thruway Authority, (PA-172) Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC) 6,500,000
-----------------------------------------------------------------------------------------------
7,445,000 New York State Thruway Authority, 4.25% Bonds, 4/1/1998 7,452,736
-----------------------------------------------------------------------------------------------
8,400,000 (b)New York State Urban Development Corp., Municipal SecuritiesTrust Receipts
(Series 1996-CMC6) Weekly VRDNs (Chase Manhattan Corp. LIQ) 8,400,000
-----------------------------------------------------------------------------------------------
4,700,000 Newark Central School District, NY, 3.875% BANs, 12/5/1997 4,700,950
-----------------------------------------------------------------------------------------------
13,200,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994C) Weekly
VRDNs (American Ref-Fuel Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) 13,200,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$17,500,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue bonds (Series 1996D) Weekly
VRDNs (American Ref-Fuel Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) $17,500,000
-----------------------------------------------------------------------------------------------
6,500,000 North Warren, NY Central School District, 4.40% BANs, 6/17/1998 6,517,540
-----------------------------------------------------------------------------------------------
400,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/(Marine
Midland Bank N.A.,
Buffalo, NY LOC) 400,000
-----------------------------------------------------------------------------------------------
1,280,000 Onondaga County, NY IDA, (Series 1997) Weekly VRDNs (General Super Plating Co., Inc.)/
(KeyBank, N.A. LOC) 1,280,000
-----------------------------------------------------------------------------------------------
1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000
-----------------------------------------------------------------------------------------------
1,912,000 Onondaga, NY, 4.00% BANs, 3/27/1998 1,912,734
-----------------------------------------------------------------------------------------------
1,400,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye
Corrugated)/(National City
Bank, Cleveland, OH LOC) 1,400,000
-----------------------------------------------------------------------------------------------
5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/(Credit Lyonnais, Paris LOC) 5,700,000
-----------------------------------------------------------------------------------------------
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
-----------------------------------------------------------------------------------------------
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
-----------------------------------------------------------------------------------------------
1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam Industrial Park)/(Fleet Bank of
New York LOC) 1,000,000
-----------------------------------------------------------------------------------------------
11,000,000 Sachem, NY Central School District at Holbrook, 4.25% TANs, 6/25/1998 11,023,957
-----------------------------------------------------------------------------------------------
325,584 Schenectady, NY IDA Weekly VRDNs (McClellan Street
Associates)/(Ford Motor Credit Corp.
LIQ)/(Chase Manhattan Bank N.A., New York LOC) 325,584
-----------------------------------------------------------------------------------------------
1,545,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs (Fortitech
Holding Corporation
Project)/(Fleet Bank of New York LOC) 1,545,000
-----------------------------------------------------------------------------------------------
1,500,000 Shelter Island, NY Union Free School District, 4.25% TANs, 6/29/1998 1,502,395
-----------------------------------------------------------------------------------------------
3,500,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 3,501,749
-----------------------------------------------------------------------------------------------
5,000,000 South Country Central School District, NY, 4.15% TANs, 6/25/1998 5,007,759
-----------------------------------------------------------------------------------------------
3,040,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy Conveyor Corp. Project)/
(Chase Manhattan Bank N.A., New York LOC) 3,040,000
-----------------------------------------------------------------------------------------------
3,700,000 Southeast, NY IDA, Variable Rate IDRB 1996 Weekly VRDNs (The Rawplug Company, Inc.)/
(Bank of New York, New York LOC) 3,700,000
-----------------------------------------------------------------------------------------------
1,200,000 Stamford Village, NY, 4.30% BANs, 4/3/1998 1,200,721
-----------------------------------------------------------------------------------------------
1,800,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/(Ford Motor Credit Corp. LIQ)/
(Chase Manhattan Bank N.A., New York LOC) 1,800,000
-----------------------------------------------------------------------------------------------
750,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/(Marine Midland Bank N.A.,
Buffalo, NY LOC) 750,000
-----------------------------------------------------------------------------------------------
800,000 Suffolk County, NY IDA Weekly VRDNs (YM-YWHA of
Suffolk)/(European American Bank,
New York LOC) 800,000
-----------------------------------------------------------------------------------------------
1,800,000 Suffolk County, NY IDA, 5.525% TOBs (Grainger (W.W.), Inc.), Optional Tender 12/1/1997 1,800,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$6,500,000 Three Village, NY Central School District, 4.25% TANs, 6/30/1998 $6,514,457
-----------------------------------------------------------------------------------------------
2,650,000 (b)United Nations, NY Development Corp., (PA-1,55) Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC) 2,650,000
-----------------------------------------------------------------------------------------------
6,500,000 (b)VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City Municipal Water Finance
Authority)/(MBIA INS)/(Hongkong & Shanghai Banking Corp. LIQ) 6,500,000
-----------------------------------------------------------------------------------------------
7,000,000 (b)VRDC/IVRC Trust, (Series 1993B) Weekly VRDNs (Metropolitan Transportation Authority,
New York)/(AMBAC INS)/(HongKong & Shanghai Banking Corp. LIQ) 7,000,000
-----------------------------------------------------------------------------------------------
7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs (Spence Engineering Co.)/
(First Union National Bank, Charlotte, NC LOC) 7,500,000
-----------------------------------------------------------------------------------------------
4,875,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill Corp.)/(First Union
National Bank, Charlotte, NC LOC) 4,875,000
-----------------------------------------------------------------------------------------------
4,000,000 West Babylon, NY Union Free School District, 4.25% TANs, 6/25/1998 4,007,451
-----------------------------------------------------------------------------------------------
1,160,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass
Container)/(Fleet Bank of
New York LOC) 1,160,000
----------------------------------------------------------------------------------------------- ------------
Total 434,330,575
----------------------------------------------------------------------------------------------- ------------
PUERTO RICO -- 1.7%
- -----------------------------------------------------------------------------------------------------------------
7,501,097 ABN AMRO Chicago Corp 1997A LeaseTOPS Trust Weekly VRDNs (Commonwealth of
Puerto Rico Municipal Revenues Collection Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/
(State Street Bank and Trust Co. LOC) 7,501,097
----------------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AMORTIZED COST)(C) $441,831,672
----------------------------------------------------------------------------------------------- ------------
</TABLE>
At October 31, 1997, 44.0% of the total investments at market value were
subject to alternative minimum tax.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard and Poor's Corporation, MIG1, or MIG-2 by Moody's Investor
Service, Inc., F-1+, F-1 and F-2 by Fitch Investor Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (unaudited)
First Tier Second Tier
---------- ------------
93.74% 6.26%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $123,380,000 which represents 28% of net assets.
(c) Also represents cost for federal tax purposes.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current
credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of
net assets ($445,575,600) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation
Notes FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing
Administration FSA -- Financial Security Assurance GTD -- Guaranty HFA --
Housing Finance Authority IDA -- Industrial Development Authority IDRB --
Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement
LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance RANs --
Revenue Anticipated Notes SA -- Supported Agreement TANs -- Tax Anticipated
Notes TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
NEW YORK MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $441,831,672
- ------------------------------------------------------------------------------------------
Cash 464,919
- ------------------------------------------------------------------------------------------
Income receivable 4,354,267
- ------------------------------------------------------------------------------------------
Receivable for shares sold 722
- ------------------------------------------------------------------------------------------ -----------
Total assets 446,651,580
- ------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------
Payable for shares redeemed $133,633
- -------------------------------------------------------------------------
Income distribution payable 846,863
- -------------------------------------------------------------------------
Accrued expenses 95,484
- ------------------------------------------------------------------------- -----------
Total liabilities 1,075,980
- ------------------------------------------------------------------------------------------ ------------
NET ASSETS for 445,575,600 shares outstanding $445,575,600
- ------------------------------------------------------------------------------------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------------------
$424,173,745 (divided by) 424,173,745 shares outstanding $1.00
- ------------------------------------------------------------------------------------------ ------------
CASH II SHARES:
- ------------------------------------------------------------------------------------------
$21,401,855 (divided by) 21,401,855 shares outstanding $1.00
- ------------------------------------------------------------------------------------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
NEW YORK MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------------
Interest $16,708,743
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $1,787,405
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 337,389
- ------------------------------------------------------------------------------------------
Custodian fees 33,849
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 90,698
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,485
- ------------------------------------------------------------------------------------------
Auditing fees 13,044
- ------------------------------------------------------------------------------------------
Legal fees 18,087
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 104,141
- ------------------------------------------------------------------------------------------
Distribution services fee -- Institutional Service Shares 1,059,609
- ------------------------------------------------------------------------------------------
Distribution services fee -- Cash II Shares 57,455
- ------------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 1,059,609
- ------------------------------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 57,455
- ------------------------------------------------------------------------------------------
Share registration costs 60,211
- ------------------------------------------------------------------------------------------
Printing and postage 17,973
- ------------------------------------------------------------------------------------------
Insurance premiums 5,467
- ------------------------------------------------------------------------------------------
Miscellaneous 3,812
- ------------------------------------------------------------------------------------------ ------------
Total expenses 4,710,689
- ------------------------------------------------------------------------------------------
Waivers --
- -------------------------------------------------------------------------
Waiver of investment advisory fee ($421,045)
- -------------------------------------------------------------------------
Waiver of distribution services fee -- Institutional Service Shares (1,059,609)
- -------------------------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (57,455)
- -------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (762,918)
- ------------------------------------------------------------------------- ----------
Total waivers (2,301,027)
- ------------------------------------------------------------------------------------------ ------------
Net expenses 2,409,662
- ----------------------------------------------------------------------------------------------------------- ------------
Net investment income $14,299,081
- ----------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------
OPERATIONS --
- -------------------------------------------------------------------------
Net investment income $14,299,081 $10,289,169
- -------------------------------------------------------------------------
Net realized gain on investments -- 5,609
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 14,299,081 10,294,778
- ------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
- -------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------
Institutional Service Shares (13,606,648) (9,551,350)
- -------------------------------------------------------------------------
Cash II Shares (692,433) (737,819)
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (14,299,081) (10,289,169)
- ------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS --
- -------------------------------------------------------------------------
Proceeds from sale of shares 1,611,371,202 1,133,036,436
- -------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 5,353,288 2,199,491
- -------------------------------------------------------------------------
Cost of shares redeemed (1,502,253,158) (1,094,725,252)
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 114,471,332 40,510,675
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets 114,471,332 40,516,284
- -------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------
Beginning of period 331,104,268 290,587,984
- ------------------------------------------------------------------------- -------------- --------------
End of period $445,575,600 $331,104,268
- ------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
NEW YORK MUNICIPAL CASH TRUST
October 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New York Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax,
the personal income taxes imposed by the New York State and New York
municipalities consistent with stability of principal. The Fund offers two
classes of shares: Institutional Service Shares and Cash II Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund's use of the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees ("Trustees"). The Fund will not incur any registration costs
upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
NEW YORK MUNICIPAL CASH FUND
<TABLE>
<CAPTION>
Additional information on each restricted security held at October 31, 1997 is
as follows:
ACQUISITION DATE ACQUISITION COST
- -------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
ABN AMRO Chicago Corp 1997A 7/30/97 $7,501,097
Albany County Airport Authority (Series 1997 FR/RI-7) 2/28/97 9,195,000
Metropolitan Transportation Authority, (Series 1997 C-2) 8/28/97 5,000,000
Monroe County, NY Airport Authority, (PT-98) 2/4/97 3,300,000
New York City Housing Development Corp., (Series 1996-CMC1A) 9/11/96 4,900,000
New York City Housing Development Corp., (Series 1996-CMC1B) 9/11/96 4,900,000
New York City, CDC 1997H 4/11/97 7,175,000
New York City (Series CDC-1997E) 3/11/97 9,335,000
New York City, (PA-156) 9/11/97 8,000,000
New York State Dormitory Authority, PA-60 (Series 1993) 3/19/95 5,475,000
New York State Dormitory Authority, PT-128 (Series 1997) 9/18/97 6,245,000
New York State Energy Research & Development Energy, (PA-144) 7/2/97 5,445,000
New York State Environmental Facilities Corp., (Series 1997 FR/RI-4) 2/25/97 5,200,000
New York State HFA, (PA-143) 8/29/97 2,500,000
New York State Medical Care Facilities Finance Agency, (1994 Series C) 8/22/96 4,500,000
New York State Mortgage Agency, (Series PA-29) 4/3/95 3,700,000
New York State Mortgage Agency, (PA-87) 7/5/95 4,215,000
New York State Mortgage Agency, (Series PT-15B) 12/29/1995-5/30/1996 3,245,000
New York State Thruway Authority, (PA-172) 9/16/97 6,500,000
New York State Urban Development Corp., (Series 1996-CMC6) 11/21/96 8,400,000
United Nations, NY Development Corp, (PA-155) 8/6/97 2,650,000
VRDC/IVRC Trust, (Series 1992A) 9/19/97 6,500,000
VRDC/IVRC Trust, (Series 1993B) 12/20/96 7,000,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $445,575,600.
NEW YORK MUNICIPAL CASH FUND
<TABLE>
<CAPTION>
Transactions in shares were as follows:
YEAR ENDED OCTOBER 31,
-------------------------
1997 1996
-------- --------
INSTITUTIONAL SERVICE SHARES SHARES SHARES
- ---------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
Shares sold 1,502,699,453 990,741,683
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared
4,828,140 1,624,496
- ----------------------------------------------------------------------------------
Shares redeemed (1,388,887,276) (962,988,268)
- ---------------------------------------------------------------------------------- -------------- ------------
Net change resulting from Institutional Service Shares transactions 118,640,317 29,377,911
- ---------------------------------------------------------------------------------- ============== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1997 1996
-------- --------
CASH II SHARES SHARES SHARES
- ---------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
Shares sold 108,671,749 142,294,754
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 525,148 574,995
- ----------------------------------------------------------------------------------
Shares redeemed (113,365,882) (131,736,985)
- ---------------------------------------------------------------------------------- -------------- ------------
Net change resulting from Cash II Shares transactions (4,168,985) (11,132,764)
- ---------------------------------------------------------------------------------- ============== ============
Net change resulting from share transactions 114,471,332 40,510,675
- ---------------------------------------------------------------------------------- ============== ============
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp., ("FSC") the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares and Cash II Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares and Cash II Shares, annually, to reimburse FSC.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $592,547,500 and $612,695,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 64.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.0% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED MUNICIPAL TRUST
(NEW YORK MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of New York
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust)
as of October 31, 1997, the results of its operations for the year then ended,
and the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
NEW YORK MUNICIPAL
CASH TRUST
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
Federated Securities Corp., Distibutor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229733
G00208-02 (12/97)
[RECYCLE LOGO]
RECYCLED PAPER
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of New York Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term New York municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of New York, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and personal income taxes imposed by New York
State and New York municipalities consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights -
Institutional Service Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
New York Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 7
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 10
Tax Information 10
Federal Income Tax 10
State and Local Tax 10
Other Classes of Shares 10
Performance Information 11
Financial Highlights - Cash II Shares 12
Financial Statements 13
Report of Independent Public Accountants 26
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.31%
12b-1 Fee (after waiver)(2) 0.00%
Total Other Expenses 0.22%
Shareholder Services Fee (after waiver)(3) 0.07%
Total Operating Expenses(4) 0.53%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1
fee. The distributor can terminate this voluntary waiver at any time at its
sole discretion. The maximum 12b-1 fee is 0.25%.
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
(4) The total operating expenses would have been 1.05% absent the voluntary
waivers of portions of the management fee and shareholder services fee and
the voluntary waiver of the 12b-1 fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $5
3 Years $17
5 Years $30
10 Years $66
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993*
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.03 0.04 0.02 0.02
- ----------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net
investment income (0.03) (0.03) (0.04) (0.02) (0.02)
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 3.26% 3.24% 3.56% 2.35% 2.16%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.53% 0.53% 0.54% 0.52% 0.54%
- ----------------------------------------
Net investment income 3.21% 3.18% 3.49% 2.31% 2.14%
- ----------------------------------------
Expense waiver/
reimbursement(b) 0.52% 0.54% 0.53% 0.13% 0.17%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period
(000 omitted) $424,174 $305,533 $276,149 $236,580 $274,357
- ----------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1991 1990 1989 1988
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.04 0.05 0.06 0.05
- ----------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net
investment income (0.03) (0.04) (0.05) (0.06) (0.05)
- ---------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 3.01% 4.59% 5.51% 5.70% 4.66%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.57% 0.52% 0.54% 0.55% 0.51%
- ----------------------------------------
Net investment income 2.99% 4.48% 5.36% 5.56% 4.57%
- ----------------------------------------
Expense waiver/
reimbursement(b) -- -- -- -- --
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period
(000 omitted) $164,492 $191,616 $197,213 $245,542 $212,786
- ----------------------------------------
</TABLE>
* Prior to November 9, 1992, the Fund provided three classes of shares.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Cash II Shares. This prospectus relates only to Institutional Service
Shares of the Fund, which are designed primarily for banks and other
institutions that hold assets for individuals, trusts, estates, or partnerships,
as a convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term New York municipal securities. The Fund may
not be a suitable investment for retirement plans or for non-New York taxpayers
because it invests in municipal securities of that state. A minimum initial
investment of $25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and personal income taxes imposed by New York State and New
York municipalities consistent with stability of principal. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by New York State and New York municipalities. (Federal regular income
tax does not include the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.) Unless indicated otherwise,
the investment policies may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of New
York and its political subdivisions and financing authorities, and obligations
of other states, territories, and possessions of the United States, including
the District of Columbia, and any political subdivision or financing authority
of any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the personal income taxes
imposed by New York State and New York municipalities ("New York Municipal
Securities"). Examples of New York Municipal Securities include, but are not
limited to:
* tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes;
* variable rate demand notes;
* municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the
foregoing obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in New York Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying New York Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain New York
Municipal Securities is subject to the federal alternative minimum tax.
NEW YORK MUNICIPAL SECURITIES
New York Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
New York Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of New York Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on New York Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of New York Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of New York
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in New York Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
New York Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of New York Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in New York Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of its total assets to secure such
borrowings. 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. These investment limitations cannot be changed without
shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for
Institutional Service Shares of the Fund. It is a Pennsylvania
corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.30% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- ---------- ------------------------------------
0.15% on the first $250 million
0.13% on the next $250 million
0.10% on the next $250 million
0.08% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 or more
over a 90-day period. Financial institutions may impose different minimum
investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 3:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New York
Municipal Cash Trust - Institutional Service Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to New York Municipal Cash Trust Institutional Service Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper
form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than New
York. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
NEW YORK TAXES
Under existing New York laws, distributions made by the Fund will not be subject
to New York State or New York City personal income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal Revenue
Code, and represent interest income attributable to obligations issued by the
State of New York and its political subdivisions as well as certain other
obligations, the interest on which is exempt from New York State and New York
City personal income taxes, such as, for example, certain obligations of the
Commonwealth of Puerto Rico. Conversely, to the extent that distributions made
by the Fund are derived from other types of obligations, such distributions will
be subject to New York State and New York City personal income taxes.
The Fund cannot predict in advance the exact portion of its dividends that will
be exempt from New York State and New York City personal income taxes. However,
the Fund will report to shareholders at least annually what percentage of the
dividends it actually paid is exempt from such taxes.
Dividends paid by the Fund are exempt from the New York City unincorporated
business taxes to the same extent that they are exempt from the New York City
personal income taxes.
Dividends paid by the Fund are not excluded from net income in determining New
York State or New York City franchise taxes on corporations or financial
institutions.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Cash II Shares which are
designed to provide a cash management vehicle for certain customers of financial
institutions which would include corporations and municipalities, as well as
larger individual accounts, seeking a high level of cash management services
from the participating institution. Cash II Shares are sold at net asset value
and are subject to a minimum initial investment of $25,000 over a 90-day period.
Cash II Shares and Institutional Service Shares are subject to certain of the
same expenses.
Expense differences, however, between Cash II Shares and Institutional Service
Shares may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993** 1992 1991(A)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 3.07% 3.05% 3.37% 2.15% 1.98% 2.86% 2.20%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.71% 0.71% 0.71% 0.71% 0.71% 0.73% 0.46%*
- -----------------------------------------
Net investment income 3.01% 3.02% 3.20% 2.19% 1.96% 2.46% 4.08%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.34% 0.36% 0.36% 0.21% 0.17% -- --
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $21,402 $25,571 $14,439 $134,051 $58,884 $4,641 $56
- -----------------------------------------
</TABLE>
* Computed on an annualized basis.
** Prior to November 9, 1992, the Fund provided three classes of shares.
(a)Reflects operations for the period from April 25, 1991 (date of initial
public investment) to October 31, 1991.
(b)Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
NEW YORK MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- 99.2%
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- 97.5%
- -----------------------------------------------------------------------------------------------------------------
$9,195,000 (b)Albany County Airport Authority, NY, Trust Receipts (Series 1997 FR/RI-7) Weekly VRDNs
(FSA INS)/(Bank of New York, New York LIQ) $9,195,000
-----------------------------------------------------------------------------------------------
945,000 Albany, NY IDA, 3.95% TOBs (146 State Street)/(Fleet Bank of New York LOC), Optional Tender
12/1/97 945,000
-----------------------------------------------------------------------------------------------
2,000,000 Brockport Village, NY, 4.125% BANs, 2/27/1998 2,002,147
-----------------------------------------------------------------------------------------------
4,000,000 Canisteo Central School District, NY, 4.00% BANs, 1/2/1998 4,001,697
-----------------------------------------------------------------------------------------------
1,500,000 Cattaraugus County, NY IDA, (Series 1996A) Weekly VRDNs (Gier's Farm Service, Inc. Project)/
(Key Bank of New York LOC) 1,500,000
-----------------------------------------------------------------------------------------------
1,800,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/(KeyBank, N.A. LOC) 1,800,000
-----------------------------------------------------------------------------------------------
3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine Corp.)/(Wells Fargo Bank,
N.A. LOC) 3,900,000
-----------------------------------------------------------------------------------------------
5,000,000 Chautauqua County, NY, 4.00% TANs, 12/18/1997 5,001,869
-----------------------------------------------------------------------------------------------
980,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine Midland Bank N.A., Buffalo, NY LOC) 980,000
-----------------------------------------------------------------------------------------------
710,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (Specialty Retailers, Inc.)/(Marine Midland
Bank N.A., Buffalo, NY LOC) 710,000
-----------------------------------------------------------------------------------------------
3,380,000 Colonie, NY IDA, 3.90% TOBs (800 North Pearl Associates)/(Fleet Bank of New York LOC),
Optional Tender 12/1/1997 3,380,000
-----------------------------------------------------------------------------------------------
4,720,000 Corinth, NY IDA, Solid Waste Disposal Revenue Bonds (Series A), 3.80% TOBs (International
Paper Co.)/(International Paper Co. GTD), Optional Tender 3/1/1998 4,720,000
-----------------------------------------------------------------------------------------------
1,300,000 Dutchess County, NY IDA, Series 1995 Weekly VRDNs (Laerdal Medical Corp.)/(Bank of New
York, New York LOC) 1,300,000
-----------------------------------------------------------------------------------------------
2,250,000 Erie County, NY IDA, (Series A) Weekly VRDNs (Gemcor)/(Marine Midland Bank N.A., Buffalo,
NY LOC) 2,250,000
-----------------------------------------------------------------------------------------------
5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs (Servotronics, Inc. Project)/
(Fleet Bank of New York LOC) 5,000,000
-----------------------------------------------------------------------------------------------
6,000,000 Farmingdale, NY Union Free School District, 4.25% TANs, 6/29/1998 6,013,342
-----------------------------------------------------------------------------------------------
1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES
Chateaugay)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 1,800,000
-----------------------------------------------------------------------------------------------
2,900,000 Freeport, NY, 4.125% BANs, 11/25/1997 2,900,536
-----------------------------------------------------------------------------------------------
945,000 Fulton County, NY IDA, 3.95% TOBs (Gates Mills Inc.)/(Fleet Bank of New York LOC),
Optional Tender 12/1/1997 945,000
-----------------------------------------------------------------------------------------------
1,400,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern Industrial Park, Inc.)/
(Fleet Bank of New York LOC) 1,400,000
-----------------------------------------------------------------------------------------------
4,080,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's Kitchen)/(Bank of New York,
New York LOC) 4,080,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$2,500,000 Herkimer County, NY, 3.875% BANs, 12/12/1997 $2,500,609
-----------------------------------------------------------------------------------------------
7,435,000 Hilton Central School District, NY, 3.90% BANs, 11/25/1997 7,436,082
-----------------------------------------------------------------------------------------------
1,880,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison, NY Upstate Metals)/
(Fleet Bank of New York LOC) 1,880,000
-----------------------------------------------------------------------------------------------
4,700,000 Madison County, NY IDA, (Series A) Weekly VRDNs (Owl Wire and Cable )/
(KeyBank, N.A. LOC) 4,700,000
-----------------------------------------------------------------------------------------------
4,525,000 Malone, NY Central School District, 4.00% RANs, 6/26/1998 4,528,409
-----------------------------------------------------------------------------------------------
15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust Weekly VRDNs
(Marine Midland New York Trust)/(Marine Midland Bank N.A., Buffalo, NY LOC) 15,000,000
-----------------------------------------------------------------------------------------------
5,000,000 (b)Metropolitan Transportation Authority, New York, MERLOTS (Series 1997 C-2)
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ)/(FGIC LOC) 5,000,000
-----------------------------------------------------------------------------------------------
3,300,000 (b)Monroe County, NY Airport Authority, (PT-98) Weekly VRDNs (Greater Rochester
International Airport)/(MBIA INS)/(Bayerische Hypotheken-Und Wechsel-Bank Ag LIQ) 3,300,000
-----------------------------------------------------------------------------------------------
4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts
(Series 1996-CMC1A) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000
-----------------------------------------------------------------------------------------------
4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts
(Series 1996-CMC1B) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000
-----------------------------------------------------------------------------------------------
150,001 New York City, NY IDA Weekly VRDNs (David Rosen Bakers
Supply)/(Ford Motor Credit Corp.
LIQ)/(Chase Manhattan Bank N.A., New York LOC) 150,001
-----------------------------------------------------------------------------------------------
39,562,850 New York City, NY IDA, (Series 1995A) Weekly VRDNs (Brooklyn Navy Yard Cogeneration
Partners, L.P. Project)/(Bank of America NT and SA, San Francisco LOC) 39,562,850
-----------------------------------------------------------------------------------------------
7,175,000 (b)New York City, NY IDA, CDC 1997H - Class A Certificates Weekly VRDNs
(Japan Airlines Co.)/(FSA INS)/(CDC Municipal Products, Inc. LIQ) 7,175,000
-----------------------------------------------------------------------------------------------
3,600,000 New York City, NY IDA, CDC Municipal Products, Inc. (Series 1996H) Weekly VRDNs
(Japan Airlines Co.)/(FSA INS)/(CDC Municipal Products, Inc. LIQ) 3,600,000
-----------------------------------------------------------------------------------------------
9,335,000 (b)New York City, NY IDA, Class A Certificates (Series
CDC-1997E) Weekly VRDNs
(Japan Airlines Co.)/(FSA INS)/(CDC Municipal Products, Inc. LIQ) 9,335,000
-----------------------------------------------------------------------------------------------
8,000,000 (b)New York City, NY, (PA-156) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ)/
(Merrill Lynch Capital Services, Inc. LOC) 8,000,000
-----------------------------------------------------------------------------------------------
5,475,000 (b)New York State Dormitory Authority, PA-60 (Series 1993) Weekly VRDNs
(Rochester General Hospital)/(FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 5,475,000
-----------------------------------------------------------------------------------------------
6,245,000 (b)New York State Dormitory Authority, PT-128 (Series 1997),
3.90% TOBs (Rosalind & Joseph Gurwin Jewish Geriatric Center
of Long Island, Inc.)/
(AMBAC INS)/(Credit Suisse First Boston, Inc. LIQ) 9/30/1998 6,245,000
-----------------------------------------------------------------------------------------------
6,000,000 New York State Dormitory Authority, PT-130 (Series 1997), 3.90% TOBs
(United Health Services Hospitals, Inc.)/(AMBAC INS)/(Credit Suisse First Boston, Inc. LIQ),
Mandatory Tender 10/1/1998 6,000,000
-----------------------------------------------------------------------------------------------
5,445,000 (b)New York State Energy Research & Development Authority, (PA-144) Weekly VRDNs
(Long Island Lighting Co.)/(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch Capital
Services, Inc. LOC) 5,445,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$8,000,000 New York State Energy Research & Development Authority, (Series 1985A), 3.60% TOBs
(Long Island Lighting Co.)/(Deutsche Bank, AG LOC), Optional Tender 3/1/1998 $8,000,000
-----------------------------------------------------------------------------------------------
3,000,000 New York State Energy Research & Development Authority, (Series 1993A) Weekly VRDNs
(Long Island Lighting Co.)/(Toronto-Dominion Bank LOC) 3,000,000
-----------------------------------------------------------------------------------------------
5,200,000 (b)New York State Environmental Facilities Corp., Trust Receipts (Series 1997 FR/RI-4)
Weekly VRDNs (New York City Municipal Water Finance Authority)/(Bank of New York,
New York LIQ) 5,200,000
-----------------------------------------------------------------------------------------------
65,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/(Chase Manhattan Bank N.A.,
New York LOC) 65,000
-----------------------------------------------------------------------------------------------
2,500,000 (b)New York State HFA, Health Facilities Revenue Bonds (PA-143) Weekly VRDNs (New York City,
NY)/(Merrill Lynch Capital Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC) 2,500,000
-----------------------------------------------------------------------------------------------
1,390,000 New York State Job Development Authority Weekly VRDNs (New York State GTD)/
(Sumitomo Bank Ltd., Osaka LOC) 1,390,000
-----------------------------------------------------------------------------------------------
955,000 New York State Job Development Authority Weekly VRDNs (New York State GTD)/
(Sumitomo Bank Ltd., Osaka LOC) 955,000
-----------------------------------------------------------------------------------------------
1,805,000 New York State Job Development Authority, (Series C-1) 4.25%, 1/2/1998
(New York State GTD)/(Sumitomo Bank Ltd., Osaka LOC) 1,805,000
-----------------------------------------------------------------------------------------------
880,000 New York State Job Development Authority, (Series D-1) 4.15%, 1/2/1998
(New York State GTD)/(Sumitomo Bank Ltd., Osaka LOC) 880,000
-----------------------------------------------------------------------------------------------
2,025,000 New York State Job Development Authority, (Series E-1) 4.15%, 1/2/1998
(New York State GTD)/(Sumitomo Bank Ltd., Osaka LOC) 2,025,000
-----------------------------------------------------------------------------------------------
4,500,000 (b)New York State Medical Care Facilities Finance Agency, Hospital & Nursing Home
Mortgage Revenue Bonds (1994 Series C) (PA-89) Weekly VRDNs (FHA INS)/(Merrill Lynch
Capital Services, Inc. LIQ) 4,500,000
-----------------------------------------------------------------------------------------------
3,700,000 (b)New York State Mortgage Agency, (Series PA-29) Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ) 3,700,000
-----------------------------------------------------------------------------------------------
4,215,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (PA-87) Weekly
VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 4,215,000
-----------------------------------------------------------------------------------------------
3,245,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series PT-15B)
Weekly VRDNs (Commerzbank AG, Frankfurt LIQ) 3,245,000
-----------------------------------------------------------------------------------------------
6,500,000 (b)New York State Thruway Authority, (PA-172) Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC) 6,500,000
-----------------------------------------------------------------------------------------------
7,445,000 New York State Thruway Authority, 4.25% Bonds, 4/1/1998 7,452,736
-----------------------------------------------------------------------------------------------
8,400,000 (b)New York State Urban Development Corp., Municipal SecuritiesTrust Receipts
(Series 1996-CMC6) Weekly VRDNs (Chase Manhattan Corp. LIQ) 8,400,000
-----------------------------------------------------------------------------------------------
4,700,000 Newark Central School District, NY, 3.875% BANs, 12/5/1997 4,700,950
-----------------------------------------------------------------------------------------------
13,200,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1994C) Weekly
VRDNs (American Ref-Fuel Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) 13,200,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$17,500,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue bonds (Series 1996D) Weekly
VRDNs (American Ref-Fuel Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC) $17,500,000
-----------------------------------------------------------------------------------------------
6,500,000 North Warren, NY Central School District, 4.40% BANs, 6/17/1998 6,517,540
-----------------------------------------------------------------------------------------------
400,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/(Marine
Midland Bank N.A.,
Buffalo, NY LOC) 400,000
-----------------------------------------------------------------------------------------------
1,280,000 Onondaga County, NY IDA, (Series 1997) Weekly VRDNs (General Super Plating Co., Inc.)/
(KeyBank, N.A. LOC) 1,280,000
-----------------------------------------------------------------------------------------------
1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000
-----------------------------------------------------------------------------------------------
1,912,000 Onondaga, NY, 4.00% BANs, 3/27/1998 1,912,734
-----------------------------------------------------------------------------------------------
1,400,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye
Corrugated)/(National City
Bank, Cleveland, OH LOC) 1,400,000
-----------------------------------------------------------------------------------------------
5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/(Credit Lyonnais, Paris LOC) 5,700,000
-----------------------------------------------------------------------------------------------
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
-----------------------------------------------------------------------------------------------
15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000
-----------------------------------------------------------------------------------------------
1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam Industrial Park)/(Fleet Bank of
New York LOC) 1,000,000
-----------------------------------------------------------------------------------------------
11,000,000 Sachem, NY Central School District at Holbrook, 4.25% TANs, 6/25/1998 11,023,957
-----------------------------------------------------------------------------------------------
325,584 Schenectady, NY IDA Weekly VRDNs (McClellan Street
Associates)/(Ford Motor Credit Corp.
LIQ)/(Chase Manhattan Bank N.A., New York LOC) 325,584
-----------------------------------------------------------------------------------------------
1,545,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs (Fortitech
Holding Corporation
Project)/(Fleet Bank of New York LOC) 1,545,000
-----------------------------------------------------------------------------------------------
1,500,000 Shelter Island, NY Union Free School District, 4.25% TANs, 6/29/1998 1,502,395
-----------------------------------------------------------------------------------------------
3,500,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 3,501,749
-----------------------------------------------------------------------------------------------
5,000,000 South Country Central School District, NY, 4.15% TANs, 6/25/1998 5,007,759
-----------------------------------------------------------------------------------------------
3,040,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy Conveyor Corp. Project)/
(Chase Manhattan Bank N.A., New York LOC) 3,040,000
-----------------------------------------------------------------------------------------------
3,700,000 Southeast, NY IDA, Variable Rate IDRB 1996 Weekly VRDNs (The Rawplug Company, Inc.)/
(Bank of New York, New York LOC) 3,700,000
-----------------------------------------------------------------------------------------------
1,200,000 Stamford Village, NY, 4.30% BANs, 4/3/1998 1,200,721
-----------------------------------------------------------------------------------------------
1,800,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/(Ford Motor Credit Corp. LIQ)/
(Chase Manhattan Bank N.A., New York LOC) 1,800,000
-----------------------------------------------------------------------------------------------
750,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/(Marine Midland Bank N.A.,
Buffalo, NY LOC) 750,000
-----------------------------------------------------------------------------------------------
800,000 Suffolk County, NY IDA Weekly VRDNs (YM-YWHA of
Suffolk)/(European American Bank,
New York LOC) 800,000
-----------------------------------------------------------------------------------------------
1,800,000 Suffolk County, NY IDA, 5.525% TOBs (Grainger (W.W.), Inc.), Optional Tender 12/1/1997 1,800,000
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL
AMOUNT VALUE
- ---------------- ----------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
(A)SHORT-TERM MUNICIPALS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
NEW YORK -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
$6,500,000 Three Village, NY Central School District, 4.25% TANs, 6/30/1998 $6,514,457
-----------------------------------------------------------------------------------------------
2,650,000 (b)United Nations, NY Development Corp., (PA-1,55) Weekly VRDNs (Merrill Lynch Capital
Services, Inc. LIQ)/(Merrill Lynch Capital Services, Inc. LOC) 2,650,000
-----------------------------------------------------------------------------------------------
6,500,000 (b)VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City Municipal Water Finance
Authority)/(MBIA INS)/(Hongkong & Shanghai Banking Corp. LIQ) 6,500,000
-----------------------------------------------------------------------------------------------
7,000,000 (b)VRDC/IVRC Trust, (Series 1993B) Weekly VRDNs (Metropolitan Transportation Authority,
New York)/(AMBAC INS)/(HongKong & Shanghai Banking Corp. LIQ) 7,000,000
-----------------------------------------------------------------------------------------------
7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs (Spence Engineering Co.)/
(First Union National Bank, Charlotte, NC LOC) 7,500,000
-----------------------------------------------------------------------------------------------
4,875,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill Corp.)/(First Union
National Bank, Charlotte, NC LOC) 4,875,000
-----------------------------------------------------------------------------------------------
4,000,000 West Babylon, NY Union Free School District, 4.25% TANs, 6/25/1998 4,007,451
-----------------------------------------------------------------------------------------------
1,160,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass
Container)/(Fleet Bank of
New York LOC) 1,160,000
----------------------------------------------------------------------------------------------- ------------
Total 434,330,575
----------------------------------------------------------------------------------------------- ------------
PUERTO RICO -- 1.7%
- -----------------------------------------------------------------------------------------------------------------
7,501,097 ABN AMRO Chicago Corp 1997A LeaseTOPS Trust Weekly VRDNs (Commonwealth of
Puerto Rico Municipal Revenues Collection Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/
(State Street Bank and Trust Co. LOC) 7,501,097
----------------------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AMORTIZED COST)(C) $441,831,672
----------------------------------------------------------------------------------------------- ------------
</TABLE>
At October 31, 1997, 44.0% of the total investments at market value were
subject to alternative minimum tax.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard and Poor's Corporation, MIG1, or MIG-2 by Moody's Investor
Service, Inc., F-1+, F-1 and F-2 by Fitch Investor Service, Inc. are
considered rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (unaudited)
First Tier Second Tier
---------- ------------
93.74% 6.26%
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $123,380,000 which represents 28% of net assets.
(c) Also represents cost for federal tax purposes.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current
credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of
net assets ($445,575,600) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation
Notes FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing
Administration FSA -- Financial Security Assurance GTD -- Guaranty HFA --
Housing Finance Authority IDA -- Industrial Development Authority IDRB --
Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement
LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance RANs --
Revenue Anticipated Notes SA -- Supported Agreement TANs -- Tax Anticipated
Notes TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
NEW YORK MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $441,831,672
- ------------------------------------------------------------------------------------------
Cash 464,919
- ------------------------------------------------------------------------------------------
Income receivable 4,354,267
- ------------------------------------------------------------------------------------------
Receivable for shares sold 722
- ------------------------------------------------------------------------------------------ -----------
Total assets 446,651,580
- ------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------
Payable for shares redeemed $133,633
- -------------------------------------------------------------------------
Income distribution payable 846,863
- -------------------------------------------------------------------------
Accrued expenses 95,484
- ------------------------------------------------------------------------- -----------
Total liabilities 1,075,980
- ------------------------------------------------------------------------------------------ ------------
NET ASSETS for 445,575,600 shares outstanding $445,575,600
- ------------------------------------------------------------------------------------------ ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------------------
$424,173,745 (divided by) 424,173,745 shares outstanding $1.00
- ------------------------------------------------------------------------------------------ ------------
CASH II SHARES:
- ------------------------------------------------------------------------------------------
$21,401,855 (divided by) 21,401,855 shares outstanding $1.00
- ------------------------------------------------------------------------------------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
NEW YORK MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------------
Interest $16,708,743
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $1,787,405
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 337,389
- ------------------------------------------------------------------------------------------
Custodian fees 33,849
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 90,698
- ------------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,485
- ------------------------------------------------------------------------------------------
Auditing fees 13,044
- ------------------------------------------------------------------------------------------
Legal fees 18,087
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 104,141
- ------------------------------------------------------------------------------------------
Distribution services fee -- Institutional Service Shares 1,059,609
- ------------------------------------------------------------------------------------------
Distribution services fee -- Cash II Shares 57,455
- ------------------------------------------------------------------------------------------
Shareholder services fee -- Institutional Service Shares 1,059,609
- ------------------------------------------------------------------------------------------
Shareholder services fee -- Cash II Shares 57,455
- ------------------------------------------------------------------------------------------
Share registration costs 60,211
- ------------------------------------------------------------------------------------------
Printing and postage 17,973
- ------------------------------------------------------------------------------------------
Insurance premiums 5,467
- ------------------------------------------------------------------------------------------
Miscellaneous 3,812
- ------------------------------------------------------------------------------------------ ------------
Total expenses 4,710,689
- ------------------------------------------------------------------------------------------
Waivers --
- -------------------------------------------------------------------------
Waiver of investment advisory fee ($421,045)
- -------------------------------------------------------------------------
Waiver of distribution services fee -- Institutional Service Shares (1,059,609)
- -------------------------------------------------------------------------
Waiver of distribution services fee -- Cash II Shares (57,455)
- -------------------------------------------------------------------------
Waiver of shareholder services fee -- Institutional Service Shares (762,918)
- ------------------------------------------------------------------------- ----------
Total waivers (2,301,027)
- ------------------------------------------------------------------------------------------ ------------
Net expenses 2,409,662
- ----------------------------------------------------------------------------------------------------------- ------------
Net investment income $14,299,081
- ----------------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
NEW YORK MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------
OPERATIONS --
- -------------------------------------------------------------------------
Net investment income $14,299,081 $10,289,169
- -------------------------------------------------------------------------
Net realized gain on investments -- 5,609
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 14,299,081 10,294,778
- ------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
- -------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------
Institutional Service Shares (13,606,648) (9,551,350)
- -------------------------------------------------------------------------
Cash II Shares (692,433) (737,819)
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (14,299,081) (10,289,169)
- ------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS --
- -------------------------------------------------------------------------
Proceeds from sale of shares 1,611,371,202 1,133,036,436
- -------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 5,353,288 2,199,491
- -------------------------------------------------------------------------
Cost of shares redeemed (1,502,253,158) (1,094,725,252)
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 114,471,332 40,510,675
- ------------------------------------------------------------------------- -------------- --------------
Change in net assets 114,471,332 40,516,284
- -------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------
Beginning of period 331,104,268 290,587,984
- ------------------------------------------------------------------------- -------------- --------------
End of period $445,575,600 $331,104,268
- ------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
NEW YORK MUNICIPAL CASH TRUST
October 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of New York Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax,
the personal income taxes imposed by the New York State and New York
municipalities consistent with stability of principal. The Fund offers two
classes of shares: Institutional Service Shares and Cash II Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund's use of the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees ("Trustees"). The Fund will not incur any registration costs
upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
<TABLE>
<CAPTION>
Additional information on each restricted security held at October 31, 1997 is
as follows:
ACQUISITION DATE ACQUISITION COST
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ABN AMRO Chicago Corp 1997A 7/30/97 $7,501,097
Albany County Airport Authority (Series 1997
FR/RI-7) 2/28/97 9,195,000
Metropolitan Transportation Authority, (Series 1997 C-2)
8/28/97 5,000,000
Monroe County, NY Airport Authority 2/4/97 3,300,000
New York City Housing Development Corp., (Series
1996-CMC1A) 9/11/96 4,900,000
New York City Housing Development Corp., (Series
1996-CMC1B) 9/11/96 4,900,000
New York City, CDC 1997H 4/11/97 7,175,000
New York City (Series CDC-1997E) 3/11/97 9,335,000
New York City, (PA-156) 9/11/97 8,000,000
New York State Dormitory Authority, PA-60 (Series
1993) 3/19/95 5,475,000
New York State Dormitory Authority, PT-128 (Series 1997)
9/18/97 6,245,000
New York State Energy Research & Development Energy, (PA-144)
7/2/97 5,445,000
New York State Environmental Facilities Corp., (Series 1997
FR/RI-4) 2/25/97 5,200,000
New York State HFA, (PA-143) 8/29/97 2,500,000
New York State Medical Care Facilities Finance Agency,
(1994 Series C) 8/22/96 4,500,000
New York State Mortgage Agency, (Series PA-29) 4/3/95 3,700,000
New York State Mortgage Agency, (PA-87) 7/5/95 4,215,000
New York State Mortgage Agency, (Series
PT-15B) 12/29/1995-
5/30/1996 3,245,000
New York State Thruway Authority, (PA-172) 9/16/97 6,500,000
New York State Urban Development Corp., (Series
1996-CMC6) 11/21/96 8,400,000
United Nations, NY Development Corp 8/6/97 2,650,000
VRDC/IVRC Trust, (Series 1992A) 9/19/97 6,500,000
VRDC/IVRC Trust, (Series 1993B) 12/20/96 7,000,000
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $445,575,600.
NEW YORK MUNICIPAL CASH FUND
<TABLE>
<CAPTION>
TRANSACTIONS IN SHARES WERE AS FOLLOWS:
YEAR ENDED OCTOBER 31,
--------------------------
1997 1996
----------- -----------
INSTITUTIONAL SERVICE SHARES SHARES SHARES
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Shares sold 1,502,699,453 990,741,683
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 4,828,140 1,624,496
- -----------------------------------------------------------------
Shares redeemed (1,388,887,276) (962,988,268)
- ----------------------------------------------------------------- ------------- -----------
Net change resulting from Institutional Service Shares transactions 118,640,317 29,377,911
- ----------------------------------------------------------------- ------------- -----------
YEAR ENDED OCTOBER 31,
--------------------------
1997 1996
----------- -----------
CASH II SHARES SHARES SHARES
- ----------------------------------------------------------------- ----------- -----------
Shares sold 108,671,749 142,294,754
- -----------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 525,148 574,995
- -----------------------------------------------------------------
Shares redeemed (113,365,882) (131,736,985)
- ----------------------------------------------------------------- ------------- -----------
Net change resulting from Cash II Shares transactions (4,168,985) 11,132,764
- ----------------------------------------------------------------- ------------- -----------
Net change resulting from share transactions 114,471,332 40,510,675
- ----------------------------------------------------------------- ------------- -----------
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp., ("FSC") the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares and Cash II Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares and Cash II Shares, annually, to reimburse FSC.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $592,547,500 and $612,695,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 64% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.0% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (NEW YORK
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of New York
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, the related statement of operations for the
year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of New
York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust)
as of October 31, 1997, the results of its operations for the year then ended,
and the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[NOTES]
[NOTES]
[LOGO] FEDERATED INVESTORS
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management
Investment Company
NEW YORK
MUNICIPAL CASH TRUST
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229741
G00208-01 (12/97)
[RECYCLE LOGO]
RECYCLED
PAPER
NEW YORK MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
CASH II SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus(es)
of New York Municipal Cash Trust (the "Fund"), a portfolio of Federated
Municipal Trust (the "Trust") dated December 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.
NEW YORK MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Cusip 314229733
Cusip 314229741
8120103B (12/97)
TABLE OF CONTENTS
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
NEW YORK INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 3
Selling Short and Buying on Margin 3
Borrowing Money 3
Pledging Assets 3
Investing in Real Estate 3
Investing in Commodities and Minerals 3
Underwriting 3
Making Loans 3
Acquiring Securities 3
Investing in Securities of Other Investment
Companies 3
Investments in Any One Issuer 3
Investing in New Issuers 4
Investing in Issuers whose Securities Are Owned
by Officers and Trustees of the Trust 4
Investing in Options 4
Investing in Illiquid Securities 4
Isuing Senior Securities 4
Regulatory Compliance 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 5
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 10
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
TAX EQUIVALENT YIELD 12
Tax-Equivalency Table 12
Total Return 13
Performance Comparisons 13
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories.
See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. The Fund or its custodian will take possession
of the securities subject to repurchase agreements, and these securities will be
marked to market daily. In the event that a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
NEW YORK INVESTMENT RISKS
The Fund invests in obligations of New York (the "State") issuers which result
in the Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a general
summary of the State's financial condition and a brief summary of the prevailing
economic conditions. This information is based on official statements relating
to securities that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The State has achieved fiscal balance for the last few years after large
deficits in the middle and late 1980's. Growing social service needs, education
and Medicare expenditures have been the areas of largest growth while prudent
program cuts and increases in revenues through service fees have enabled the
state's budget to remain within balance for the last few years. While the state
still has a large accumulated deficit as a percentage of its overall budget, the
fiscal performance in recent years has demonstrated a changed political
environment that has resulted in realistic revenue and expenditure projections
to achieve financially favorable results. The state also benefits from a high
level of per capita income that is well above the national average and from
significant amounts of international trade.
New York's economy is large and diverse. While several upstate counties benefit
from agriculture, manufacturing and high technology industries, New York City
nonetheless still dominates the State's economy through its international
importance in economic sectors such as advertising, finance, and banking. New
York's recession ended during the first quarter of 1993, but recovery has been
at a slower pace than national or regional levels. Since October 1992, total
employment has increased by more than 4% while the unemployment rate declined
from 8.7% to 6.4%. The state estimates that employment will increase by another
1% through the end of 1998.
New York's budget process has been historically characterized by contentious and
protracted budget debates. Fiscal years 1997 and 1998 were no exception; in both
cases the budgets were passed months after the end of the prior fiscal year.
Financial operations in fiscal years 1996 and 1997 have improved due to a
growing economy and expenditure controls. Between 3/31/95 and 3/31/97, the fund
balance deficit in the General Fund dropped from $3.3 billion to $994 million.
After two years of minimal budget growth, New York eased its spending restraint
in the FY1998 Budget by increasing expenditures by over 5%. The FY1998 Budget
also includes tax cuts, the impact from which will be most pronounced in the
years 2000 and beyond. The State expects that the growth from economically
sensitive taxes will be sufficient to offset the revenue lost from the tax cuts.
The improvement in the state's credit quality was sufficient for Standard &
Poor's to upgrade New York's General Obligation rating from A- to A in August of
1997. Moody's continues to assign an A rating to New York.
The Fund's concentration in municipal securities issued by the state and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
state or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the state; and the underlying fiscal condition of the state,
its counties, and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as may be necessary for clearance of
transactions.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in amounts not in excess of 5% of its total
assets or in an amount up to one-third of the value of its total assets,
including the amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This borrowing provision is not for
investment leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
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 municipal securities secured by real estate or interests in real estate.
INVESTING IN COMMODITIES AND MINERALS
The Fund will not purchase or sell commodities, commodity contracts, or oil,
gas, or other mineral exploration or development programs.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
MAKING LOANS
The Fund will not make loans except that it may acquire publicly or non-publicly
issued New York municipal securities, in accordance with its investment
objective, policies, and limitations, and the Trust's Declaration of Trust.
ACQUIRING SECURITIES
The Fund will not acquire the voting securities of any issuer, except as part of
a merger, consolidation, reorganization, or acquisition of assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment company or
investment trust.
INVESTMENTS IN ANY ONE ISSUER
With respect to securities comprising 75% of its assets, the Fund will not
invest more than 10% of its total assets in the securities of any one issuer.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalitites, or similar entities, will be
considered a separate issuer if its assets and revenues are separate from those
of the government body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If in the
case of an industrial development bond or government issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers (or in the alternative, guarantors, where applicable)
which have records of less than three years of continuous operations, including
the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Trust or its investment adviser, owning
individually more than .50% of the issuer's securities, together own more than
5% of the issuer's securities.
INVESTING IN OPTIONS
The Fund will not purchase or sell puts, calls, straddles, spreads, or any
combination of them, except that the Fund may purchase municipal securities
accompanied by agreements of sellers to repurchase them at the Fund's option.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its total assets in
illiquid securities, including repurchase agreements maturing in more than seven
days.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by the investment
objective and policies and limitations of the Fund.
The above limitations cannot be changed without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments , as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director,
Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds.Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; Partner or Trustee in
private real estate ventures in Southwest Florida; formerly,
President, Naples Property Management, Inc. and Northgate Village
Development Corporation; Director or Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director
or Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of
the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company, and Federated Shareholder Services; Director,
Federated Services Company; President or Executive Vice President of
the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Cash II Shares of New York Municipal Cash Trust: North Fork
Bank, Mattituck, New York, owned approximately 4,661,718 shares (17.74%); SEI
Trust Company, Oaks, Pennsylvania, owned approximately 3,128,648 shares
(11.91%); Barrons Educational Series, Inc., Hauppa, New York, owned
approximately 2,606,824 shares (9.92%); Compass Investment Services Corp.,
Melville, New York, owned approximately 2,406,956 shares (9.16%); Misty
Associates, Inc., Hauppauge, New York, owned approximately 1,481,399 shares
(5.63%); and Kent Michael Wolgemuth, New York, New York, owed approximately
1,364,961 shares (5.19%).
As of November 24, 1997, the following shareholders of record owed 5% or more of
the outstanding Institutional Service Shares of New York Municipal Cash Trust:
Fiduciary Trust Co. International, New York, New York, owned approximately
72,728,500 shares (15.97%) and Fleet Securities Corp., Rochester, New York,
owned approximately 59,447,541 shares (13.05%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund
Complex
Thomas G. Bigley $4,443 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended
October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are
John F. Donahue, his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the New York Municipal Cash Trust, the
Fund,or any shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its contract
with the New York Municipal Cash Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $1,787,405, $1,298,934, and
$1,335,835, respectively, of which $421,045, $343,123, and $351,948,
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $337,389, $245,547,
and $252,807, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type, and
number of accounts and transactions
made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Plan, the Trustees expect that the Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, payments in the amounts of $57,455
and $1,059,609 were made pursuant to the Plan, for Cash II Shares and
Institutional Service Shares, respectively, none of which was paid to financial
institutions. In addition, for the fiscal year ended October 31, 1997, the Fund
earned shareholder service fees in the amounts of $57,455 and $1,059,609 for
Cash II Shares and Institutional Service Shares, respectively, of which $57,455
and $296,691, respectively, were paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yields for Cash II Shares
and Institutional Service Shares were 3.04% and 3.22%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yields for Cash
II Shares and Institutional Service Shares were 3.08% and 3.27%, respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 39.60% tax rate (the maximum effective federal
rate for individuals) and assuming that the income is 100% tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yields for
Cash II Shares and Institutional Service Shares were 5.03% and 5.33%,
respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table on the next page indicates, a "tax-free"
investment can be an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF NEW YORK
TAX BRACKET:
FEDERAL
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE
21.85% 34.85% 37.85% 42.85% 46.45%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
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%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
The Fund's Cash II Shares average annual total returns for the one-year and
five-year periods ended October 31, 1997 and for the period from April 25, 1991
(date of initial public investment) through October 31, 1997 were 3.07%, 2.73%
and 2.87%, respectively.
The Fund's Institutional Service Shares average annual total returns for the
one-year, five-year and ten-year periods ended October 31, 1997 were 3.26%,
2.91% and 3.80%, respectively.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime and 21 municipal with
assets approximating $28.0 billion, $12.8 billion and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATIONS
RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus sign (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA -- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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 SERVICES, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2 -- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
Florida Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Florida Municipal Cash Trust (the "Fund") offered by
this prospectus represent interests in a portfolio of Federated Municipal Trust
(the "Trust"), an open-end management investment company (a mutual fund). The
Fund invests primarily in short-term Florida municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Florida, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and which will enable the Fund to maintain an investment
portfolio that will cause its shares to be exempt from the Florida intangibles
tax consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Institutional Shares 2 General
Information 3 Investment Information 3 Investment Objective 3 Investment
Policies 3 Florida Municipal Securities 5 Investment Risks 5 Investment
Limitations 5 Fund Information 6 Management of the Fund 6 Distribution of
Institutional Shares 6 Administration of the Fund 7 Net Asset Value 7 How to
Purchase Shares 7 Purchasing Shares Through a Financial Institution 7
Purchasing Shares by Wire 8 Purchasing Shares by Check 8 Special Purchase
Features 8 How to Redeem Shares 8 Redeeming Shares Through a Financial
Institution 8 Redeeming Shares by Telephone 8 Redeeming Shares by Mail 9
Special Redemption Features 9 Account and Share Information 9 Dividends 9
Capital Gains 9 Confirmations and Account Statements 9 Accounts with Low
Balances 9 Voting Rights 9 Tax Information 10 Federal Income Tax 10 State and
Local Taxes 10 Florida Intangibles Tax 10 Florida State Municipal Taxation 10
Other Classes of Shares 11 Performance Information 11 Financial
Highlights--Cash II Shares 12 Financial Statements 13 Report of Independent
Public Accountants Inside Back Cover
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee (after waiver)(1) 0.27%
12b-1 Fee(2) 0.00%
Total Other Expenses 0.32%
Shareholder Services Fee (after waiver)(3) 0.19%
Total Operating Expenses(4) 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The Fund has no present intention of paying or accruing the 12b-1 fee during
the fiscal year ending October 31, 1998. If the Fund were paying or accruing the
12b-1 fee, the Fund would be able to pay up to 0.25% of its average daily net
assets for the 12b-1 fee. See "Fund Information."
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(4) The total Institutional Shares operating expenses in the table above are
based on expenses expected during fiscal year ending October 31, 1998. The total
Institutional Shares operating expenses were 0.54% for the fiscal year ended
October 31, 1997 and would have been 0.79% absent the voluntary waivers of
portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Institutional Shares of the Trust
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 6
3 Years $19
5 Years $33
10 Years $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.04 0.004
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.04) (0.004)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(B) 3.20% 3.20% 3.60% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.54% 0.49% 0.45% 0.28%*
Net investment income 3.15% 3.17% 3.58% 3.28%*
Expense waiver/reimbursement(c) 0.25% 0.34% 0.42% 1.03%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $479,860 $500,993 $153,347 $53,966
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 21, 1994 (date of initial
public investment) to October 31, 1994. For the period from September 12, 1994
(start of business) to September 21, 1994, the Fund had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Cash II Shares. This prospectus relates only to Institutional Shares of the
Fund, which are designed primarily for financial institutions acting in an
agency or fiduciary capacity as a convenient means of accumulating an interest
in a professionally managed portfolio investing in short-term Florida municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Florida taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and to
maintain an investment portfolio that will cause its shares to be exempt from
the Florida intangibles tax. This investment objective cannot be changed without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by complying with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds and by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax. (Federal regular income tax does
not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Florida
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the Florida intangibles tax
("Florida Municipal Securities"). Examples of Florida Municipal Securities, but
are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Florida Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Florida Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. The Fund may dispose of a
commitment prior to settlement if the adviser deems it appropriate to do so. In
addition, the Fund may enter into transactions to sell its purchase commitments
to third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Fund may realize
short-term profits or losses upon the sale of such commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Florida
Municipal Securities is subject to the federal alternative minimum tax.
FLORIDA MUNICIPAL SECURITIES
Florida Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Florida Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Florida Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Florida Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Florida Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Florida
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Florida Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Florida Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Florida Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected.
Due to these risk considerations the Fund's concentration in Florida Municipal
Securities may entail a greater level of risk than other types of money market
funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.25% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$10,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida
Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Florida Municipal Cash Trust -- Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholders checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Charles Schwab and Company, Inc., San Francisco,
California, (as record owner holding Institutional Shares for its clients),
owned 64.69% of the voting securities of the Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Florida. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
FLORIDA INTANGIBLES TAX
Shareholders of the Fund that are subject to the Florida intangibles tax will
not be required to include the value of their Fund shares in their taxable
intangible property if all of the Fund's investments on the annual assessment
date are obligations that would be exempt from such tax if held directly by such
shareholders, such as Florida and U.S. government obligations. As described
earlier, the Fund will normally attempt to invest substantially all of its
assets in securities which are exempt from the Florida intangibles tax.
Accordingly, the value of the Fund shares held by a shareholder should under
normal circumstances be exempt from the Florida intangibles tax.
However, if the portfolio consists of any assets which are not so exempt on the
annual assessment date, only the portion of the shares of the Fund which relate
to securities issued by the United States and its possessions and territories
will be exempt from the Florida intangibles tax, even if they partly relate to
Florida tax-exempt securities.
FLORIDA STATE MUNICIPAL TAXATION
In a majority of states that have an income tax, dividends paid by a mutual fund
attributable to investments in a particular states municipal obligations are
exempt from both federal and such states income tax. If Florida were to adopt an
income tax in the future, and assuming that its income tax policy with respect
to mutual funds investing in Florida state and local municipal obligations would
be similar to the general tax policy of other states, dividends paid by the Fund
would be exempt from Florida state income tax. A constitutional amendment
approved by referendum would be required before an individual tax could be
imposed.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Cash II Shares. Cash II
Shares are sold at net asset value primarily to retail customers of financial
institutions and are subject to a minimum initial investment of $10,000 over a
90-day period.
Both classes are subject to certain of the same expenses.
Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also
are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
TOTAL RETURN(B) 2.94% 2.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.65%*
Net investment income 2.88% 3.07%*
Expense waiver/reimbursement(c) 0.24% 0.43%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $62,756 $31,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 27, 1995 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
FLORIDA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.5%
ALABAMA--5.6%
$ 5,000,000 Alabama HFA, Multifamily Revenue Bonds (Series 1997) Weekly $ 5,000,000
VRDNs (YW Housing Partners, Ltd. Project)/(Amsouth Bank N.A.,
Birmingham LOC)
3,000,000 Alabama State IDA Weekly VRDNs (Columbus Mills Inc. 3,000,000
Project)/(SunTrust Bank, Atlanta LOC)
3,350,000 Alabama State IDA, Industrial Revenue Bonds Weekly VRDNs 3,350,000
(Kappler USA, Inc. Project)/ (National Bank of Canada,
Montreal LOC)
4,500,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag 4,500,000
Corporation, Ltd.)/(South Trust Bank of Alabama, Birmingham
LOC)
1,500,000 Birmingham, AL IDA, (Series 1997) Weekly VRDNs (Millcraft,
AL 1,500,000 Inc.)/(Regions Bank, Alabama LOC)
270,000 Geneva County, AL IDB, Adjustable Fixed Rate IDRB's (Series 270,000
1996) Weekly VRDNs (Brooks AG Co., Inc.)/(Regions Bank,
Alabama LOC)
500,000 Montgomery, AL IDB, (Series 1997) Weekly VRDNs (KINPAK INC. 500,000
Project)/(First Union National Bank of Florida LOC)
4,000,000 St. Clair County, AL IDB, (Series 1993) Weekly VRDNs (Ebsco 4,000,000
Industries, Inc.)/(National Australia Bank, Ltd., Melbourne
LOC)
5,300,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 5,300,000
1995A) Weekly VRDNs (Fulghum Fibres Project (AL))/(Regions
Bank, Alabama LOC)
3,000,000 Troy, AL IDB, IRB's (Series 1996A) Weekly VRDNs (Hudson 3,000,000
Sauces & Dressings, Inc.)/ (Amsouth Bank N.A., Birmingham
LOC)
TOTAL 30,420,000
FLORIDA--71.5%
20,000,000 Brevard County, FL School District, (Series 1997), 3.95% 20,025,576
TANs, 6/30/1998
2,950,000 Brevard County, FL Weekly VRDNs (Greywater 2,950,000
Investments)/(Huntington National Bank, Columbus, OH LOC)
3,435,000 Broward County, FL HFA, (CR-5), 3.90% TOBs (GNMA 3,435,000
COL)/(Citibank NA, New York LIQ), Optional Tender
11/1/1997
3,000,000 Broward County, FL HFA, Multifamily Housing Revenue Refunding 3,000,000
Bonds (1995 Series B) Weekly VRDNs (Harbour Town of Jacaranda
Project)/(SouthTrust Bank of Alabama, Birmingham LOC)
2,530,000 Broward County, FL HFA, Single Family Mortgage Revenue Bonds 2,530,000
(Series 1997), 4.05% TOBs (Trinity Funding Company INV),
Mandatory Tender 4/1/1998
3,240,000 Broward County, FL Health Facility Authority, Revenue Bonds 3,240,000
Weekly VRDNs (John Knox Village of Florida)/(First Union
National Bank, Charlotte, N.C. LOC)
15,000,000 Broward County, FL, (Series B), 3.85% CP (Bank of 15,000,000
Tokyo-Mitsubishi Ltd. LIQ), Mandatory Tender 2/25/1998
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 1,130,000 Broward County, FL, IDRB (Series 1993) Weekly VRDNs (American $ 1,130,000
Whirlpool Products Corp. Project)/(Nationsbank, N.A.,
Charlotte LOC)
1,000,000 Broward County, FL, IDRB's (Series 1997) Weekly VRDNs (Fast 1,000,000
Real Estate Partners, Ltd.)/ (SunTrust Bank, Central Florida
LOC)
12,000,000 Capital Projects Finance Authority, FL, Revenue Bonds (Series 12,000,000
1997) Weekly VRDNs (FSA INS)/(Credit Suisse First Boston,
Inc. LIQ)
6,000,000 Charlotte County, FL School District, (Series 1997), 4.00% 6,008,249
TANs, 6/30/1998
3,000,000 Citrus Park, FL Community Development District, Capital 3,000,000
Improvement Bonds (Series 1996) Weekly VRDNs (Hillsborough
County, FL IDA)/(Dresdner Bank AG, Frankfurt LOC)
13,420,000 (b)Clipper Florida Tax-Exempt Trust, Class A Certificates of 13,420,000
Participation, Series 1996-3B Weekly VRDNs (Escambia County,
FL HFA)/(State Street Bank and Trust Co. LOC)
4,020,000 Dade County, FL IDA Weekly VRDNs (Futernick Associates, 4,020,000
Inc.)/(First Union National Bank, Charlotte, NC LOC)
1,000,000 Dade County, FL IDA, (Series 1985C) Weekly VRDNs (Dolphins 1,000,000
Stadium)/(Societe Generale, Paris LOC)
1,300,000 Dade County, FL IDA, IDRB (Series 1995) Weekly VRDNs (June 1,300,000
Leasing Co. Project (FL))/(First Union National Bank of
Florida LOC)
2,000,000 Dade County, FL IDA, IDRB's (Series 1996A) Weekly VRDNs (U.S. 2,000,000
Holdings, Inc.)/(First Union National Bank of Florida LOC)
1,100,000 Dade County, FL IDA, Industrial Development Revenue Refunding 1,100,000
Bonds Weekly VRDNs (Continental Farms, Inc.)/(Nationsbank,
N.A., Charlotte LOC)
3,000,000 Dade County, FL School District, 4.50% Bonds (MBIA INS), 3,007,316
2/15/1998
1,000,000 Duval County, FL HFA, Multifamily Housing Revenue Bonds 1,000,000
(Series 1985 F) Weekly VRDNs (Lakes of Mayport Apartments
Project)/(SunTrust Bank, Atlanta LOC)
2,000,000 (b)Escambia County, FL HFA, P-Floats PA-129 Weekly VRDNs 2,000,000
(Merrill Lynch Capital Services, Inc. LIQ)
4,620,000 (b)Escambia County, FL HFA, PT-121, 3.60% TOBs (GNMA 4,620,000
COL)/(Banco Santander LIQ), Mandatory Tender 4/2/1998
14,180,000 (b)Escambia County, FL HFA, Variable Rate Certificates, 14,180,000
(Series 1997E) Weekly VRDNs (Bank of America NT and SA, San
Francisco LIQ)
730,000 Eustis Health Facilities Authority, FL, Health Facilities 730,000
Revenue Bonds, (Series 1992) Weekly VRDNs (Florida
Hospital/Waterman, Inc. Project)/(SunTrust Bank, Central
Florida LOC)
1,400,000 Florida HFA, (Series 1989E) Weekly VRDNs (Fairmont Oaks 1,400,000
Project)/(Comerica Bank, Detroit, MI LOC)
3,300,000 Florida HFA, (Series 1996U) Weekly VRDNs (Heron Park 3,300,000
Project)/(Nationsbank, N.A., Charlotte LOC)
6,920,000 (b)Florida HFA, Homeowner Mortgage Revenue Bonds PT-88
6,920,000 (Series 1996-3) Weekly VRDNs (GNMA COL)/(Banco
Santander LIQ)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 4,700,000 Florida HFA, Housing Revenue Bonds (Series J) Weekly VRDNs $ 4,700,000
(Ashley Lake Project)/ (Barclays Bank PLC, London LOC)
2,500,000 Florida HFA, Multifamily Housing Revenue Bonds (1995 Series 2,500,000
M) Weekly VRDNs (Bainbridge Club Apartments Project)/(PNC
Bank, Kentucky LOC)
770,000 Florida State Department of Transportation, (Alligator Alley 777,914
Revenue Bonds, Series 1997), 5.50% Bonds (FGIC INS), 7/1/1998
2,500,000 (b)Florida State Department of Transportation, (Series 1993A) 2,500,000
Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LOC)
2,385,000 Florida State, 5.00% Bonds, 7/1/1998 2,404,239
2,860,000 (b)Fort Myers, FL, PA-180 (Series 1997A) Weekly VRDNs (AMBAC 2,860,000
INS)/(Merrill Lynch Capital Services, Inc. LIQ)
7,500,000 Greater Orlando (FL) Aviation Authority, Airport Facilities 7,500,000
Subordinated CP Notes (Series B), 3.75% CP, Mandatory Tender
12/11/1997
6,300,000 Greater Orlando (FL) Aviation Authority, Airport Facilities 6,300,000
Subordinated CP Notes (Series B), 3.75% CP, Mandatory Tender
12/9/1997
3,300,000 Halifax Hospital Medical Center, FL, Daytona Beach, FL 3,301,780
(Series 1997), 4.125% TANs (Barnett Bank, N.A. LOC),
4/15/1998
3,900,000 Hillsborough County, FL Aviation Authority, Bond Anticipation 3,900,000
Commercial Paper Notes, 3.80% CP (Tampa International
Airport)/(National Westminster Bank, PLC, London LOC),
Mandatory Tender 12/16/1997
2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager
Equipment 2,000,000 Co.)/(Mellon Bank N.A., Pittsburgh
LOC)
1,000,000 Hillsborough County, FL IDA, (Series 1988) Weekly VRDNs 1,000,000
(Florida Steel Corp.)/(Bankers Trust Co., New York LOC)
2,000,000 Hillsborough County, FL IDA, (Series 1992) Weekly VRDNs 2,000,000
(SIFCO Turbine Component Service)/(National City Bank,
Cleveland, OH LOC)
1,400,000 Hillsborough County, FL IDA, IDRB's (Series 1996) Weekly 1,400,000
VRDNs (VIGO Importing Company Project)/(Barnett Bank, N.A.
LOC)
1,335,000 Hillsborough County, FL IDA, Variable Rate Demand IRDB's 1,335,000
(Series 1996) Weekly VRDNs (Trident Yacht Building
Partnership Project)/(First Union National Bank of Florida
LOC)
4,080,000 Indian River County, FL, IDRB's (Series 1997) Weekly VRDNs 4,080,000
(Ocean Spray Cranberries, Inc.)/ (Wachovia Bank of NC, N.A.,
Winston-Salem LOC)
3,295,000 (b)Jacksonville Transportation Authority, PA-163 Weekly VRDNs 3,295,000
(Florida State)/(Merrill Lynch Capital Services, Inc. LIQ)
2,805,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds 2,805,000
(Series 1994) Weekly VRDNs (River Garden/The Coves
Project)/(First Union National Bank, Charlotte, NC LOC)
1,900,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds 1,900,000
(Series 1996) Weekly VRDNs (Jacksonville Faculty Practice
Association Project)/(Nationsbank, N.A., Charlotte LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 2,130,000 Jacksonville, FL IDA, (Series 1996) Weekly VRDNs (St. John's $ 2,130,000
Medical Investors, Ltd.)/ (Barnett Bank, N.A. LOC)
6,500,000 Jacksonville, FL IDA, IDRBs (series 1996) Weekly VRDNs 6,500,000
(Portion Pac, Inc.)/ (Heinz (H.J.) Co. GTD)
800,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City 800,000
Bank, Kentucky LOC)
3,800,000 Lake Shore, FL Hospital Authority, Health Facilities Revenue 3,800,000
Bonds (Series 1991) Weekly VRDNs (Lake Shore
Hospital)/(Kredietbank N.V., Brussels LOC)
2,680,000 Lee County, FL IDA, (Series 1985) Weekly VRDNs (Christian
& 2,680,000 Missionary Alliance Foundation)/(Banque
Paribas, Paris LOC)
3,200,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader 3,200,000
North America Corp.)/ (Deutsche Bank, AG LOC)
710,000 Manatee County, FL HFA Weekly VRDNs (Carriage Club)/(Mellon 710,000
Bank N.A., Pittsburgh LOC)
2,285,000 Manatee County, FL HFA, Multifamily Mortgage Revenue 2,285,000
Refunding Bonds (Series 1989- A) Weekly VRDNs
(Hampton/McGuire L.P.)/(Nationsbank, N.A., Charlotte LOC)
3,000,000 Manatee County, FL Port Authority, (Series 1997), 4.25% BANs, 3,006,691
7/1/1998
3,500,000 Manatee County, FL, IDR Refunding Bonds (Series 1997)
Weekly 3,500,000 VRDNs (CFI Manufacturing, Inc.
Project)/(Barnett Bank, N.A.
LOC)
1,000,000 Marion County, FL Health Facility Authority, Multifamily 1,000,000
Revenue Bonds (1985 Series F) Weekly VRDNs (Paddock Place
Project)/(SunTrust Bank, Atlanta LOC)
2,400,000 Martin County, FL IDA, Tender Industrial Revenue Bonds 2,400,000
(Series 1986) Weekly VRDNs (Tampa Farm Service, Inc.
Project)/(SunTrust Banks, Inc. LOC)
9,100,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) 9,100,000
Weekly VRDNs (ABN AMRO Bank N.V., Amsterdam LOC)
2,400,000 Okeechobee County, FL, (Series 1992) Weekly VRDNs (Morgan 2,400,000
Guaranty Trust Co., New York LOC)
5,893,000 Orange County, FL HFA, (Series 1997A) Weekly VRDNs (Regal 5,893,000
Pointe Apartments Project)/ (Nationsbank, N.A., Charlotte
LOC)
730,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds 730,000
Weekly VRDNs (Sutton Place Ltd. Project)/(Nationsbank, N.A.,
Charlotte LOC)
11,000,000 Orange County, FL School District, (Series 1997), 4.25% TANs, 11,050,949
9/15/1998
6,200,000 Orlando, FL (City of), Capital Improvement Commerial Paper 6,200,000
Notes, (1994 Series-A), 3.75% CP, Mandatory Tender 11/14/1997
7,000,000 Palm Beach County, FL HFA, SFM Revenue Bonds, (Series 1997B), 7,000,000
3.95% TOBs (Bayerische Landesbank Girozentrale INV),
Mandatory Tender 7/1/1998
20,000,000 Palm Beach County, FL School District, (Series 1997), 4.50% 20,140,681
TANs, 10/13/1998
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 2,300,000 Palm Beach County, FL, Revenue Bonds, (Series 1995) Weekly $ 2,300,000
VRDNs (Norton Gallery and School of Art, Inc.
Project)/(Northern Trust Co., Chicago, IL LOC)
3,500,000 (b)Pinellas County Industry Council, FL, IDRB (Series 1994) 3,500,000
Weekly VRDNs (Genca Corporation Project)/(PNC Bank, Ohio,
N.A. LOC)
2,633,000 Pinellas County Industry Council, FL, IDRB (Series 1995) 2,633,000
Weekly VRDNs (ATR International Inc., Project)/(First Union
National Bank of Florida LOC)
2,740,000 Pinellas County, FL HFA, Single Family Mortgage Revenue Bonds 2,740,000
(Series 1997 B), 3.80% TOBs (Westdeutsche Landesbank
Girozentrale INV), Mandatory Tender 2/1/1998
2,260,000 (b)Pinellas County, FL Health Facility Authority, SFM Revenue 2,260,000
Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch
Capital Services, Inc. LIQ)
1,000,000 Polk County, FL IDA, Variable Rate Demand IDRB's (Series 1,000,000
1996) Weekly VRDNs (Ytong Florida, Ltd. Project)/(First Union
National Bank of Florida LOC)
12,700,000 Putnam County, FL Development Authority, (Series 1984D), 12,700,000
3.60% TOBs (Seminole Electric Cooperative, Inc
(FL))/(National Rural Utilities Cooperative Finance Corp.
GTD), Optional Tender 12/15/1997
8,085,000 Putnam County, FL Development Authority, Floating/Fixed Rate 8,085,000
Poll Control Revenue Bonds (Pooled Series 1984 H-4), 3.70%
TOBs (Seminole Electric Cooperative, Inc (FL))/(National
Rural Utilities Cooperative Finance Corp. LOC), Optional
Tender 3/15/1998
2,500,000 St. Petersburg, FL HFA, Refunding Revenue and Revenue Bonds 2,500,000
(Series 1997) Weekly VRDNs (Manorah Manor)/(SunTrust Bank,
Central Florida LOC)
2,280,000 (b)Sarasota County, FL IDRB (Series 1994) 4.00% (Resource
2,280,000 Recovery Systems of Sarasota Project)/(Fleet
National Bank, Providence, RI LOC) 11/26/1997
4,100,000 Sarasota County, FL Public Hospital District, Series 1993A, 4,100,000
3.90% CP (Sarasota Memorial Hospital), Mandatory Tender
12/9/1997
2,115,000 Sarasota, FL, Educational Facilities Revenue Bonds (Series 2,115,000
1996) Weekly VRDNs (Ringling School of Art and Design,
Inc.)/(SunTrust Bank, Central Florida LOC)
4,400,000 Seminole County, FL Health Facility Authority IDA, (Series 4,400,000
1991) Weekly VRDNs (Florida Living Nursing Center)/(Barnett
Bank, N.A. LOC)
7,595,000 St. Lucie County, FL, IDR Bonds (Series 1985) Weekly VRDNs 7,595,000
(Savannahs Hospital)/ (Nationsbank, N.A., Charlotte LOC)
14,885,000 Stephens Municipal Investment Products Company, Inc., (Class 14,885,000
B Certificates) Weekly VRDNs (Jacksonville Electric
Authority)/(Bank of New York, New York LIQ)
1,300,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood of 1,300,000
Florida)/(SouthTrust Bank of Alabama, Birmingham LOC)
13,500,000 (b)TEB Municipal Trust I, Class A Floating Rate Receipts 13,500,000
Weekly VRDNs (Uniforet Inc.)/(Bank One, Ohio, N.A. LOC)
3,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs (Arch Aluminum & 3,300,000
Glass Co., Inc. Project)/ (Mellon Bank N.A., Pittsburgh LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 6,000,000 Titusville, FL, Multi-Purpose Revenue Bonds, Installment $ 6,000,000
1995A Weekly VRDNs (Banque Paribas, Paris LOC)
2,060,000 Volusia County, FL Health Facilities Authority, (Series 2,060,000
1994A) 3.95% (Southwest Volusia Healthcare Corp.)/(First
Union National Bank, Charlotte, NC LOC) 11/27/1997
1,575,000 Volusia County, FL IDA Weekly VRDNs (Crane Cams)/(Wells Fargo 1,575,000
Bank, Arizona LOC)
2,700,000 Wakulla County, FL IDA Weekly VRDNs (Winco Utilities, Inc. 2,700,000
Project)/(Barnett Bank, N.A. LOC)
TOTAL 387,929,395
GEORGIA--0.9%
4,995,000 Bartow County School District, GA, (Series 1997), 4.00% TANs, 4,997,378
12/31/1997
ILLINOIS--0.5%
2,700,000 Illinois Development Finance Authority, (Series 1997) Weekly 2,700,000
VRDNs (Ada S. McKinley Community Services, Inc.)/(Harris
Trust & Savings Bank, Chicago LOC)
INDIANA--0.4%
2,330,000 Penn Harris Madison, IN ISD, Temporary Loan Time Warrants, 2,331,487
4.10% TANs, 12/31/1997
KENTUCKY--1.7%
9,500,000 Kentucky Housing Corp., Housing Revenue Bonds (Series 1997 9,500,000
D), 4.00% TOBs, Mandatory Tender 12/31/1997
MARYLAND--0.5%
600,000 Anne Arundel County, MD, Economic Development Revenue Bonds 600,000
(Series 1996) Weekly VRDNs (Atlas Container Corp.
Project)/(Mellon Bank N.A., Pittsburgh LOC)
850,000 Baltimore County, MD, Revenue Bonds (1994 Issue) Weekly VRDNs 850,000
(Direct Marketing Associates, Inc. Facility)/(First National
Bank of Maryland, Baltimore LOC)
1,000,000 Maryland State Community Development Administration, (Series 1,000,000
1990A) Weekly VRDNs (College Estates)/(First National Bank of
Maryland, Baltimore LOC)
500,000 Wicomico County, MD, EDRB (Series 1994) Weekly VRDNs (Field 500,000
Container Co. L.P.)/(Northern Trust Co., Chicago, IL LOC)
TOTAL 2,950,000
MINNESOTA--1.5%
5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs (Jerome 5,000,000
Foods)/(Norwest Bank Minnesota, Minneapolis LOC)
3,100,000 Lino Lakes, MN, Variable Rate Demand IDRBs (Series 1997) 3,100,000
Weekly VRDNs (Taylor Corp.)/ (Norwest Bank Minnesota,
Minneapolis LOC)
TOTAL 8,100,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
NEBRASKA--1.5%
$ 8,400,000 Stanton County, NE, IDRB (Series 1996) Weekly VRDNs (Nucor $ 8,400,000
Corporation)/(Nucor Corporation GTD)
NEW YORK--2.7%
14,505,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue 14,505,000
Bonds (Series 1994C) Weekly VRDNs (American Ref-Fuel
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
NORTH DAKOTA--0.2%
1,000,000 Fargo, ND, Variable Rate Demand IDRB's (Series 1997) Weekly 1,000,000
VRDNs (Owen Industries, Inc.)/ (Mellon Bank N.A., Pittsburgh
LOC)
OHIO--3.0%
6,500,000 Dayton, OH, Airport Improvement BAN's (Series 1996), 3.80% 6,501,242
BANs, 12/16/1997
6,500,000 (b)Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly 6,500,000
VRDNs (GNMA COL)/(Bank of New York, New York LIQ)
3,000,000 Ohio State Public Facilities Commission, Higher Ed Capital 3,001,058
Facilities Revenue Bonds, 4.25% Bonds (AMBAC INS), 12/1/1997
TOTAL 16,002,300
PENNSYLVANIA--3.8%
7,000,000 (b)Pennsylvania Housing Finance Authority, Merlots (Series K) 7,000,000
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ)
13,500,000 Pennsylvania State Higher Education Assistance Agency, 13,500,000
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC)
TOTAL 20,500,000
RHODE ISLAND--0.9%
4,900,000 Rhode Island Housing & Mortgage Finance Corp., Homeownership 4,900,000
Opportunity Bonds (Series 22-B), 3.70% TOBs, Mandatory Tender
12/1/1997
SOUTH DAKOTA--2.1%
11,400,000 South Dakota Housing Development Authority, Homeownership 11,400,000
Mortgage Bonds (1997 Series E) Weekly VRDNs
TENNESSEE--0.6%
300,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui 300,000
Ta Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd.
LOC)
3,000,000 (b)Tennessee Housing Development Agency, (Series C) Weekly 3,000,000
VRDNs (Bank of America NT and SA, San Francisco LIQ)
TOTAL 3,300,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
TEXAS--2.1%
$ 2,100,000 Angelina and Neches River Authority, Texas, Solid Waste $ 2,100,000
Disposal Revenue Bonds (Series 1993), 4.00% CP (Temple-Eastex
Inc. Project)/(Temple-Inland, Inc. GTD), Mandatory Tender
12/5/1997
9,000,000 Tarrant County, TX IDC, (Series 1997) Weekly VRDNs (Lear 9,000,000
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC)
TOTAL 11,100,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 540,035,560
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 56.5% of the
portfolio as calculated based upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation, MIG1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1
and F-2 by Fitch Investors Service, Inc. are considered rated in one of the two
highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) as identified as Second Tier securities. The
Fund follows application regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIERSECOND TIER
99.61% 0.39% (b) Denotes a restricted security which is subject to restrictions
on resale under Federal Securities laws. At October 31, 1997, these securities
amounted to $87,835,000 which represents 16.19% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($542,616,413) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation
Notes COL --Collateralized CP --Commercial Paper EDRB --Economic Development
Revenue Bonds FGIC --Financial Guaranty Insurance Company FSA --Financial
Security Assurance GNMA --Government National Mortgage Association GTD
- --Guaranty HFA --Housing Finance Authority HFDC --Health Facility Development
Corporation IDA --Industrial Development Authority IDB --Industrial Development
Bond IDC --Industrial Development Corporation IDR --Industrial Development
Revenue IDRB --Industrial Development Revenue Bond INS --Insured INV
- --Investment Agreement IRB --Industrial Revenue Bond ISD --Independent School
District LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond
Investors Assurance PLC --Public Limited Company SFM --Single Family Mortgage
TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate
Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FLORIDA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 540,035,560
Cash 450,816
Income receivable 3,214,267
Receivable for shares sold 1,685
Deferred organizational costs 8,883
Deferred expenses 15,764
Total assets 543,726,975
LIABILITIES:
Payable for shares redeemed $ 30,064
Income distribution payable 942,290
Accrued expenses 138,208
Total liabilities 1,110,562
Net Assets for 542,616,413 shares outstanding $ 542,616,413
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$479,860,500 / 479,860,500 shares outstanding $1.00
CASH II SHARES:
$62,755,913 / 62,755,913 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FLORIDA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 21,347,290
EXPENSES:
Investment advisory fee $ 2,318,654
Administrative personnel and services fee 437,669
Custodian fees 46,624
Transfer and dividend disbursing agent fees and 63,469
expenses
Directors'/Trustees' fees 7,427
Auditing fees 13,125
Legal fees 9,088
Portfolio accounting fees 116,872
Distribution services fee--Cash II Shares 217,783
Shareholder services fee--Institutional Shares 1,231,376
Shareholder services fee--Cash II Shares 217,783
Share registration costs 44,752
Printing and postage 20,661
Insurance premiums 5,790
Taxes 848
Miscellaneous 8,397
Total expenses 4,760,318
Waivers --
Waiver of investment advisory fee $ (1,092,531)
Waiver of distribution services fee--Cash II Shares (43,985)
Waiver of shareholder services fee--Institutional (295,530)
Shares
Total waivers (1,432,046)
Net expenses 3,328,272
Net investment income $ 18,019,018
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 18,019,018 $ 12,310,459
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (15,508,497) (10,917,907)
Cash II Shares (2,510,521) (1,392,552)
Change in net assets resulting from distributions to (18,019,018) (12,310,459)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,742,878,407 2,270,320,962
Net asset value of shares issued to shareholders in payment 11,374,153 6,801,443
of distributions declared
Cost of shares redeemed (1,744,452,792) (1,897,652,278)
Change in net assets resulting from share transactions 9,799,768 379,470,127
Change in net assets 9,799,768 379,470,127
NET ASSETS:
Beginning of period 532,816,645 153,346,518
End of period $ 542,616,413 $ 532,816,645
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FLORIDA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Florida Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and Cash II
Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and to
maintain an investement portfolio that will cause its shares to be exempt from
the Florida intangibles tax.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees. The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Clipper FL Tax Exempt Trust 6/14/1997 & $ 13,420,000
Class A 6/19/1997
Escambia Cty, FL HFA 12/3/1996 2,000,000
P-Floats PA-129
Escambia Cty, FL HFA 3.90% 8/19/1997 4,620,000
TOBs
Escambia Cty, FL HFA 6/5/1997 14,180,000
Variable Rate Cert
FL HFA HMRB PT-88 9/27/1996 6,920,000
FL State Dept of 7/23/1996 2,500,000
Transportation
Fort Myers, FL PA-180 10/10/1997 2,860,000
Jacksonville Transportation 8/13/1997 3,295,000
Authority PA-163
Pinellas County Industry 11/29/1994 & 3,500,000
Council, FL IDRB 1/18/1995
Pinellas County FL HFA SFM 3/5/1995 2,260,000
Rev Bonds
Sarasota County FL IDRB 11/15/1994 2,280,000
TEB Municipal Trust I Class A 8/27/1996 13,500,000
Ohio HFA Trust Receipts 9/15/1997 6,500,000
Pennsylvania HFA 7/21/1997 7,000,000
Tennessee HDA 10/30/1997 3,000,000
</TABLE>
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
Shares sold 1,408,372,551 1,967,231,853
Shares issued to shareholders in payment of distributions 11,369,710 6,801,419
declared
Shares redeemed (1,440,874,666) (1,626,386,885)
Net change resulting from Institutional Share (21,132,405) 347,646,387
transactions
PERIOD ENDED OCTOBER 31,
CASH II SHARES 1997 1996
Shares sold 334,505,856 303,089,109
Shares issued to shareholders in payment of distributions 4,443 24
declared
Shares redeemed (303,578,126) (271,265,393)
Net change resulting from Cash II Share transactions 30,932,173 31,823,740
Net change resulting from share transactions 9,799,768 379,470,127
</TABLE>
At October 31, 1997, capital paid-in aggregated $542,616,413.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp.("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Shares and Cash II Shares. The Plan provides that the Fund may
incur distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS ASSETS OF CLASS
Institutional Shares 0.25%
Cash II Shares 0.25%
The distributor may voluntarity choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion. For the year ended October 31, 1997, the Institutional Shares
did not incur a distribution services fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services, the Fund will pay Federated Shareholder Services ("FSS") up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $15,374 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $3,160 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $1,728,450,000 and $1,454,300,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 50.2% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 4.4% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (FLORIDA
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Florida
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Florida Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
Florida Municipal Cash Trust
(A Portfolio of Federated Municipal Trust) Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
FLORIDA MUNICIPAL CASH TRUST INSTITUTIONAL 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 PPG Place
Pittsburgh, PA 15222
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229758
005392 (12/97)
[Graphic]
Florida Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Cash II Shares
PROSPECTUS
The Cash II Shares of Florida Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Florida municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Florida, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and which will enable the Fund to maintain an investment
portfolio that will cause its shares to be exempt from the Florida intangibles
tax consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Cash II Shares 2 General
Information 3 Investment Information 3 Investment Objective 3 Investment
Policies 3 Florida Municipal Securities 5 Investment Risks 5 Investment
Limitations 5 Fund Information 6 Management of the Fund 6 Distribution of Cash
II Shares 6 Administration of the Fund 7 Net Asset Value 7 How to Purchase
Shares 7 Purchasing Shares Through a Financial Institution 7 Purchasing Shares
by Wire 8 Purchasing Shares by Check 8 Special Purchase Features 8 How to
Redeem Shares 8 Redeeming Shares Through a Financial Institution 8 Redeeming
Shares by Telephone 8 Redeeming Shares by Mail 9 Special Redemption Features 9
Account and Share Information 9 Dividends 9 Capital Gains 9 Confirmations and
Account Statements 9 Accounts with Low Balances 9 Voting Rights 9 Tax
Information 10 Federal Income Tax 10 State and Local Taxes 10 Florida
Intangibles Tax 10 Florida State Municipal Taxation 10 Other Classes of Shares
11 Performance Information 11 Financial Highlights--Institutional Shares 12
Financial Statements 13 Report of Independent Public Accountants Inside Back
Cover
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CASH II SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.27%
12b-1 Fee (after waiver)(2) 0.20%
Total Other Expenses 0.38%
Shareholder Services Fee 0.25%
Total Operating Expenses(3) 0.85%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 Fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate the voluntary waiver at any time
at its sole discretion. The maximum 12b-1 fee is 0.25%.
(3) The total operating expenses in the table are based on expenses expected
during the fiscal year ending October 31, 1998. The total operating expenses
were 0.80% for the fiscal year ended October 31, 1997, and would have been 1.04%
absent the voluntary waivers of portions of the management fee and 12b-1 fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Cash II Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $9
3 Years $27
5 Years $47
10 Years $105
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--CASH II SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
TOTAL RETURN(B) 2.94% 2.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.65%*
Net investment income 2.88% 3.07%*
Expense waiver/reimbursement(c) 0.24% 0.43%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $62,756 $31,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 27, 1995 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Cash II Shares and
Institutional Shares. This prospectus relates only to Cash II Shares of the
Fund, which are designed primarily for retail customers of financial
institutions as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Florida municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Florida taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and to
maintain an investment portfolio that will cause its shares to be exempt from
the Florida intangibles tax. This investment objective cannot be changed without
shareholder approval. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by complying with the
diversification and other requirements of Rule 2a-7 under the Investment Company
Act of 1940 which regulates money market mutual funds and by following the
investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax (Federal regular income tax does
not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Florida
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the Florida intangibles tax
("Florida Municipal Securities"). Examples of Florida Municipal Securities
include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Florida Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests, or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Florida Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. The Fund may dispose of a
commitment prior to settlement if the adviser deems it appropriate to do so. In
addition, the Fund may enter into transactions to sell its purchase commitments
to third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Fund may realize
short-term profits or losses upon the sale of such commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Florida
Municipal Securities is subject to the federal alternative minimum tax.
FLORIDA MUNICIPAL SECURITIES
Florida Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Florida Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Florida Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Florida Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Florida Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Florida
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Florida Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Florida Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Florida Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected.
Due to these risk considerations the Fund's concentration in Florida Municipal
Securities may entail a greater level of risk than other types of money market
funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.40% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF CASH II SHARES
Federated Securities Corp. is the principal distributor for Cash II Shares
of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee
by the Fund in an amount computed at an annual rate of up to 0.25% of the
average daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Plan is a compensation-type plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying, or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to maintain
shareholder accounts. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational, and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Cash II
Shares from the value of Fund assets attributable to Cash II Shares, and
dividing the remainder by the number of Cash II Shares outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below either
through a financial institution (such as a bank or broker/dealer), or by wire,
or by check directly from the Fund, with a minimum initial investment of $10,000
or more over a 90-day period. Financial institutions may impose different
minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida
Municipal Cash Trust--Cash II Shares; Fund Number (this number can be found on
the account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Florida Municipal Cash Trust--Cash II Shares. Please include an account
number on the check. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day after the check
is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Trustman, Atlanta, Georgia (as record owner holding
Cash II Shares for its clients) owned 99.84% of the voting securities of the
Fund, and, therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Florida. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
FLORIDA INTANGIBLES TAX
Shareholders of the Fund that are subject to the Florida intangibles tax will
not be required to include the value of their Fund shares in their taxable
intangible property if all of the Fund's investments on the annual assessment
date are obligations that would be exempt from such tax if held directly by such
shareholders, such as Florida and U.S. government obligations. As described
earlier, the Fund will normally attempt to invest substantially all of its
assets in securities which are exempt from the Florida intangibles tax.
Accordingly, the value of the Fund shares held by a shareholder should under
normal circumstances be exempt from the Florida intangibles tax.
However, if the portfolio consists of any assets which are not so exempt on the
annual assessment date, only the portion of the shares of the Fund which relate
to securities issued by the United States and its possessions and territories
will be exempt from the Florida intangibles tax, even if they partly relate to
Florida tax-exempt securities.
FLORIDA STATE MUNICIPAL TAXATION
In a majority of states that have an income tax, dividends paid by a mutual fund
attributable to investments in a particular state's municipal obligations are
exempt from both federal and such state's income tax. If Florida were to adopt
an income tax in the future, and assuming that its income tax policy with
respect to mutual funds investing in Florida state and local municipal
obligations would be similar to the general tax policy of other states,
dividends paid by the Fund would be exempt from Florida state income tax. A
constitutional amendment approved by referendum would be required before an
individual tax could be imposed.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary capacity and are subject to a minimum initial
investment of $10,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed under a 12b-1 Plan adopted by the Fund and
also are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.04 0.004
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.04) (0.004)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(B) 3.20% 3.20% 3.60% 0.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.54% 0.49% 0.45% 0.28%*
Net investment income 3.15% 3.17% 3.58% 3.28%*
Expense waiver/reimbursement(c) 0.25% 0.34% 0.42% 1.03%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $479,860 $500,993 $153,347 $53,966
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 21, 1994 (date of initial
public investment) to October 31, 1994. For the period from September 12, 1994
(start of business) to September 21, 1994, the Fund had no investment activity.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
FLORIDA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.5%
ALABAMA--5.6%
$ 5,000,000 Alabama HFA, Multifamily Revenue Bonds (Series 1997) Weekly $ 5,000,000
VRDNs (YW Housing Partners, Ltd. Project)/(Amsouth Bank N.A.,
Birmingham LOC)
3,000,000 Alabama State IDA Weekly VRDNs (Columbus Mills Inc. 3,000,000
Project)/(SunTrust Bank, Atlanta LOC)
3,350,000 Alabama State IDA, Industrial Revenue Bonds Weekly VRDNs 3,350,000
(Kappler USA, Inc. Project)/ (National Bank of Canada,
Montreal LOC)
4,500,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag 4,500,000
Corporation, Ltd.)/(South Trust Bank of Alabama, Birmingham
LOC)
1,500,000 Birmingham, AL IDA, (Series 1997) Weekly VRDNs (Millcraft,
AL 1,500,000 Inc.)/(Regions Bank, Alabama LOC)
270,000 Geneva County, AL IDB, Adjustable Fixed Rate IDRB's (Series 270,000
1996) Weekly VRDNs (Brooks AG Co., Inc.)/(Regions Bank,
Alabama LOC)
500,000 Montgomery, AL IDB, (Series 1997) Weekly VRDNs (KINPAK INC. 500,000
Project)/(First Union National Bank of Florida LOC)
4,000,000 St. Clair County, AL IDB, (Series 1993) Weekly VRDNs (Ebsco 4,000,000
Industries, Inc.)/(National Australia Bank, Ltd., Melbourne
LOC)
5,300,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 5,300,000
1995A) Weekly VRDNs (Fulghum Fibres Project (AL))/(Regions
Bank, Alabama LOC)
3,000,000 Troy, AL IDB, IRB's (Series 1996A) Weekly VRDNs (Hudson 3,000,000
Sauces & Dressings, Inc.)/ (Amsouth Bank N.A., Birmingham
LOC)
TOTAL 30,420,000
FLORIDA--71.5%
20,000,000 Brevard County, FL School District, (Series 1997), 3.95% 20,025,576
TANs, 6/30/1998
2,950,000 Brevard County, FL Weekly VRDNs (Greywater 2,950,000
Investments)/(Huntington National Bank, Columbus, OH LOC)
3,435,000 Broward County, FL HFA, (CR-5), 3.90% TOBs (GNMA 3,435,000
COL)/(Citibank NA, New York LIQ), Optional Tender
11/1/1997
3,000,000 Broward County, FL HFA, Multifamily Housing Revenue Refunding 3,000,000
Bonds (1995 Series B) Weekly VRDNs (Harbour Town of Jacaranda
Project)/(SouthTrust Bank of Alabama, Birmingham LOC)
2,530,000 Broward County, FL HFA, Single Family Mortgage Revenue Bonds 2,530,000
(Series 1997), 4.05% TOBs (Trinity Funding Company INV),
Mandatory Tender 4/1/1998
3,240,000 Broward County, FL Health Facility Authority, Revenue Bonds 3,240,000
Weekly VRDNs (John Knox Village of Florida)/(First Union
National Bank, Charlotte, N.C. LOC)
15,000,000 Broward County, FL, (Series B), 3.85% CP (Bank of 15,000,000
Tokyo-Mitsubishi Ltd. LIQ), Mandatory Tender 2/25/1998
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 1,130,000 Broward County, FL, IDRB (Series 1993) Weekly VRDNs (American $ 1,130,000
Whirlpool Products Corp. Project)/(Nationsbank, N.A.,
Charlotte LOC)
1,000,000 Broward County, FL, IDRB's (Series 1997) Weekly VRDNs (Fast 1,000,000
Real Estate Partners, Ltd.)/ (SunTrust Bank, Central Florida
LOC)
12,000,000 Capital Projects Finance Authority, FL, Revenue Bonds (Series 12,000,000
1997) Weekly VRDNs (FSA INS)/(Credit Suisse First Boston,
Inc. LIQ)
6,000,000 Charlotte County, FL School District, (Series 1997), 4.00% 6,008,249
TANs, 6/30/1998
3,000,000 Citrus Park, FL Community Development District, Capital 3,000,000
Improvement Bonds (Series 1996) Weekly VRDNs (Hillsborough
County, FL IDA)/(Dresdner Bank AG, Frankfurt LOC)
13,420,000 (b)Clipper Florida Tax-Exempt Trust, Class A Certificates of 13,420,000
Participation, Series 1996-3B Weekly VRDNs (Escambia County,
FL HFA)/(State Street Bank and Trust Co. LOC)
4,020,000 Dade County, FL IDA Weekly VRDNs (Futernick Associates, 4,020,000
Inc.)/(First Union National Bank, Charlotte, NC LOC)
1,000,000 Dade County, FL IDA, (Series 1985C) Weekly VRDNs (Dolphins 1,000,000
Stadium)/(Societe Generale, Paris LOC)
1,300,000 Dade County, FL IDA, IDRB (Series 1995) Weekly VRDNs (June 1,300,000
Leasing Co. Project (FL))/(First Union National Bank of
Florida LOC)
2,000,000 Dade County, FL IDA, IDRB's (Series 1996A) Weekly VRDNs (U.S. 2,000,000
Holdings, Inc.)/(First Union National Bank of Florida LOC)
1,100,000 Dade County, FL IDA, Industrial Development Revenue Refunding 1,100,000
Bonds Weekly VRDNs (Continental Farms, Inc.)/(Nationsbank,
N.A., Charlotte LOC)
3,000,000 Dade County, FL School District, 4.50% Bonds (MBIA INS), 3,007,316
2/15/1998
1,000,000 Duval County, FL HFA, Multifamily Housing Revenue Bonds 1,000,000
(Series 1985 F) Weekly VRDNs (Lakes of Mayport Apartments
Project)/(SunTrust Bank, Atlanta LOC)
2,000,000 (b)Escambia County, FL HFA, P-Floats PA-129 Weekly VRDNs 2,000,000
(Merrill Lynch Capital Services, Inc. LIQ)
4,620,000 (b)Escambia County, FL HFA, PT-121, 3.60% TOBs (GNMA 4,620,000
COL)/(Banco Santander LIQ), Mandatory Tender 4/2/1998
14,180,000 (b)Escambia County, FL HFA, Variable Rate Certificates, 14,180,000
(Series 1997E) Weekly VRDNs (Bank of America NT and SA, San
Francisco LIQ)
730,000 Eustis Health Facilities Authority, FL, Health Facilities 730,000
Revenue Bonds, (Series 1992) Weekly VRDNs (Florida
Hospital/Waterman, Inc. Project)/(SunTrust Bank, Central
Florida LOC)
1,400,000 Florida HFA, (Series 1989E) Weekly VRDNs (Fairmont Oaks 1,400,000
Project)/(Comerica Bank, Detroit, MI LOC)
3,300,000 Florida HFA, (Series 1996U) Weekly VRDNs (Heron Park 3,300,000
Project)/(Nationsbank, N.A., Charlotte LOC)
6,920,000 (b)Florida HFA, Homeowner Mortgage Revenue Bonds PT-88
6,920,000 (Series 1996-3) Weekly VRDNs (GNMA COL)/(Banco
Santander LIQ)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 4,700,000 Florida HFA, Housing Revenue Bonds (Series J) Weekly VRDNs $ 4,700,000
(Ashley Lake Project)/ (Barclays Bank PLC, London LOC)
2,500,000 Florida HFA, Multifamily Housing Revenue Bonds (1995 Series 2,500,000
M) Weekly VRDNs (Bainbridge Club Apartments Project)/(PNC
Bank, Kentucky LOC)
770,000 Florida State Department of Transportation, (Alligator Alley 777,914
Revenue Bonds, Series 1997), 5.50% Bonds (FGIC INS), 7/1/1998
2,500,000 (b)Florida State Department of Transportation, (Series 1993A) 2,500,000
Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LOC)
2,385,000 Florida State, 5.00% Bonds, 7/1/1998 2,404,239
2,860,000 (b)Fort Myers, FL, PA-180 (Series 1997A) Weekly VRDNs (AMBAC 2,860,000
INS)/(Merrill Lynch Capital Services, Inc. LIQ)
7,500,000 Greater Orlando (FL) Aviation Authority, Airport Facilities 7,500,000
Subordinated CP Notes (Series B), 3.75% CP, Mandatory Tender
12/11/1997
6,300,000 Greater Orlando (FL) Aviation Authority, Airport Facilities 6,300,000
Subordinated CP Notes (Series B), 3.75% CP, Mandatory Tender
12/9/1997
3,300,000 Halifax Hospital Medical Center, FL, Daytona Beach, FL 3,301,780
(Series 1997), 4.125% TANs (Barnett Bank, N.A. LOC),
4/15/1998
3,900,000 Hillsborough County, FL Aviation Authority, Bond Anticipation 3,900,000
Commercial Paper Notes, 3.80% CP (Tampa International
Airport)/(National Westminster Bank, PLC, London LOC),
Mandatory Tender 12/16/1997
2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager
Equipment 2,000,000 Co.)/(Mellon Bank N.A., Pittsburgh
LOC)
1,000,000 Hillsborough County, FL IDA, (Series 1988) Weekly VRDNs 1,000,000
(Florida Steel Corp.)/(Bankers Trust Co., New York LOC)
2,000,000 Hillsborough County, FL IDA, (Series 1992) Weekly VRDNs 2,000,000
(SIFCO Turbine Component Service)/(National City Bank,
Cleveland, OH LOC)
1,400,000 Hillsborough County, FL IDA, IDRB's (Series 1996) Weekly 1,400,000
VRDNs (VIGO Importing Company Project)/(Barnett Bank, N.A.
LOC)
1,335,000 Hillsborough County, FL IDA, Variable Rate Demand IRDB's 1,335,000
(Series 1996) Weekly VRDNs (Trident Yacht Building
Partnership Project)/(First Union National Bank of Florida
LOC)
4,080,000 Indian River County, FL, IDRB's (Series 1997) Weekly VRDNs 4,080,000
(Ocean Spray Cranberries, Inc.)/ (Wachovia Bank of NC, N.A.,
Winston-Salem LOC)
3,295,000 (b)Jacksonville Transportation Authority, PA-163 Weekly VRDNs 3,295,000
(Florida State)/(Merrill Lynch Capital Services, Inc. LIQ)
2,805,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds 2,805,000
(Series 1994) Weekly VRDNs (River Garden/The Coves
Project)/(First Union National Bank, Charlotte, NC LOC)
1,900,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds 1,900,000
(Series 1996) Weekly VRDNs (Jacksonville Faculty Practice
Association Project)/(Nationsbank, N.A., Charlotte LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 2,130,000 Jacksonville, FL IDA, (Series 1996) Weekly VRDNs (St. John's $ 2,130,000
Medical Investors, Ltd.)/ (Barnett Bank, N.A. LOC)
6,500,000 Jacksonville, FL IDA, IDRBs (series 1996) Weekly VRDNs 6,500,000
(Portion Pac, Inc.)/ (Heinz (H.J.) Co. GTD)
800,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City 800,000
Bank, Kentucky LOC)
3,800,000 Lake Shore, FL Hospital Authority, Health Facilities Revenue 3,800,000
Bonds (Series 1991) Weekly VRDNs (Lake Shore
Hospital)/(Kredietbank N.V., Brussels LOC)
2,680,000 Lee County, FL IDA, (Series 1985) Weekly VRDNs (Christian
& 2,680,000 Missionary Alliance Foundation)/(Banque
Paribas, Paris LOC)
3,200,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader 3,200,000
North America Corp.)/ (Deutsche Bank, AG LOC)
710,000 Manatee County, FL HFA Weekly VRDNs (Carriage Club)/(Mellon 710,000
Bank N.A., Pittsburgh LOC)
2,285,000 Manatee County, FL HFA, Multifamily Mortgage Revenue 2,285,000
Refunding Bonds (Series 1989- A) Weekly VRDNs
(Hampton/McGuire L.P.)/(Nationsbank, N.A., Charlotte LOC)
3,000,000 Manatee County, FL Port Authority, (Series 1997), 4.25% BANs, 3,006,691
7/1/1998
3,500,000 Manatee County, FL, IDR Refunding Bonds (Series 1997)
Weekly 3,500,000 VRDNs (CFI Manufacturing, Inc.
Project)/(Barnett Bank, N.A.
LOC)
1,000,000 Marion County, FL Health Facility Authority, Multifamily 1,000,000
Revenue Bonds (1985 Series F) Weekly VRDNs (Paddock Place
Project)/(SunTrust Bank, Atlanta LOC)
2,400,000 Martin County, FL IDA, Tender Industrial Revenue Bonds 2,400,000
(Series 1986) Weekly VRDNs (Tampa Farm Service, Inc.
Project)/(SunTrust Banks, Inc. LOC)
9,100,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) 9,100,000
Weekly VRDNs (ABN AMRO Bank N.V., Amsterdam LOC)
2,400,000 Okeechobee County, FL, (Series 1992) Weekly VRDNs (Morgan 2,400,000
Guaranty Trust Co., New York LOC)
5,893,000 Orange County, FL HFA, (Series 1997A) Weekly VRDNs (Regal 5,893,000
Pointe Apartments Project)/ (Nationsbank, N.A., Charlotte
LOC)
730,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds 730,000
Weekly VRDNs (Sutton Place Ltd. Project)/(Nationsbank, N.A.,
Charlotte LOC)
11,000,000 Orange County, FL School District, (Series 1997), 4.25% TANs, 11,050,949
9/15/1998
6,200,000 Orlando, FL (City of), Capital Improvement Commerial Paper 6,200,000
Notes, (1994 Series-A), 3.75% CP, Mandatory Tender 11/14/1997
7,000,000 Palm Beach County, FL HFA, SFM Revenue Bonds, (Series 1997B), 7,000,000
3.95% TOBs (Bayerische Landesbank Girozentrale INV),
Mandatory Tender 7/1/1998
20,000,000 Palm Beach County, FL School District, (Series 1997), 4.50% 20,140,681
TANs, 10/13/1998
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 2,300,000 Palm Beach County, FL, Revenue Bonds, (Series 1995) Weekly $ 2,300,000
VRDNs (Norton Gallery and School of Art, Inc.
Project)/(Northern Trust Co., Chicago, IL LOC)
3,500,000 (b)Pinellas County Industry Council, FL, IDRB (Series 1994) 3,500,000
Weekly VRDNs (Genca Corporation Project)/(PNC Bank, Ohio,
N.A. LOC)
2,633,000 Pinellas County Industry Council, FL, IDRB (Series 1995) 2,633,000
Weekly VRDNs (ATR International Inc., Project)/(First Union
National Bank of Florida LOC)
2,740,000 Pinellas County, FL HFA, Single Family Mortgage Revenue Bonds 2,740,000
(Series 1997 B), 3.80% TOBs (Westdeutsche Landesbank
Girozentrale INV), Mandatory Tender 2/1/1998
2,260,000 (b)Pinellas County, FL Health Facility Authority, SFM Revenue 2,260,000
Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch
Capital Services, Inc. LIQ)
1,000,000 Polk County, FL IDA, Variable Rate Demand IDRB's (Series 1,000,000
1996) Weekly VRDNs (Ytong Florida, Ltd. Project)/(First Union
National Bank of Florida LOC)
12,700,000 Putnam County, FL Development Authority, (Series 1984D), 12,700,000
3.60% TOBs (Seminole Electric Cooperative, Inc
(FL))/(National Rural Utilities Cooperative Finance Corp.
GTD), Optional Tender 12/15/1997
8,085,000 Putnam County, FL Development Authority, Floating/Fixed Rate 8,085,000
Poll Control Revenue Bonds (Pooled Series 1984 H-4), 3.70%
TOBs (Seminole Electric Cooperative, Inc (FL))/(National
Rural Utilities Cooperative Finance Corp. LOC), Optional
Tender 3/15/1998
2,500,000 St. Petersburg, FL HFA, Refunding Revenue and Revenue Bonds 2,500,000
(Series 1997) Weekly VRDNs (Manorah Manor)/(SunTrust Bank,
Central Florida LOC)
2,280,000 (b)Sarasota County, FL IDRB (Series 1994) 4.00% (Resource
2,280,000 Recovery Systems of Sarasota Project)/(Fleet
National Bank, Providence, RI LOC) 11/26/1997
4,100,000 Sarasota County, FL Public Hospital District, Series 1993A, 4,100,000
3.90% CP (Sarasota Memorial Hospital), Mandatory Tender
12/9/1997
2,115,000 Sarasota, FL, Educational Facilities Revenue Bonds (Series 2,115,000
1996) Weekly VRDNs (Ringling School of Art and Design,
Inc.)/(SunTrust Bank, Central Florida LOC)
4,400,000 Seminole County, FL Health Facility Authority IDA, (Series 4,400,000
1991) Weekly VRDNs (Florida Living Nursing Center)/(Barnett
Bank, N.A. LOC)
7,595,000 St. Lucie County, FL, IDR Bonds (Series 1985) Weekly VRDNs 7,595,000
(Savannahs Hospital)/ (Nationsbank, N.A., Charlotte LOC)
14,885,000 Stephens Municipal Investment Products Company, Inc., (Class 14,885,000
B Certificates) Weekly VRDNs (Jacksonville Electric
Authority)/(Bank of New York, New York LIQ)
1,300,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood of 1,300,000
Florida)/(SouthTrust Bank of Alabama, Birmingham LOC)
13,500,000 (b)TEB Municipal Trust I, Class A Floating Rate Receipts 13,500,000
Weekly VRDNs (Uniforet Inc.)/(Bank One, Ohio, N.A. LOC)
3,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs (Arch Aluminum & 3,300,000
Glass Co., Inc. Project)/ (Mellon Bank N.A., Pittsburgh LOC)
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
FLORIDA--CONTINUED
$ 6,000,000 Titusville, FL, Multi-Purpose Revenue Bonds, Installment $ 6,000,000
1995A Weekly VRDNs (Banque Paribas, Paris LOC)
2,060,000 Volusia County, FL Health Facilities Authority, (Series 2,060,000
1994A) 3.95% (Southwest Volusia Healthcare Corp.)/(First
Union National Bank, Charlotte, NC LOC) 11/27/1997
1,575,000 Volusia County, FL IDA Weekly VRDNs (Crane Cams)/(Wells Fargo 1,575,000
Bank, Arizona LOC)
2,700,000 Wakulla County, FL IDA Weekly VRDNs (Winco Utilities, Inc. 2,700,000
Project)/(Barnett Bank, N.A. LOC)
TOTAL 387,929,395
GEORGIA--0.9%
4,995,000 Bartow County School District, GA, (Series 1997), 4.00% TANs, 4,997,378
12/31/1997
ILLINOIS--0.5%
2,700,000 Illinois Development Finance Authority, (Series 1997) Weekly 2,700,000
VRDNs (Ada S. McKinley Community Services, Inc.)/(Harris
Trust & Savings Bank, Chicago LOC)
INDIANA--0.4%
2,330,000 Penn Harris Madison, IN ISD, Temporary Loan Time Warrants, 2,331,487
4.10% TANs, 12/31/1997
KENTUCKY--1.7%
9,500,000 Kentucky Housing Corp., Housing Revenue Bonds (Series 1997 9,500,000
D), 4.00% TOBs, Mandatory Tender 12/31/1997
MARYLAND--0.5%
600,000 Anne Arundel County, MD, Economic Development Revenue Bonds 600,000
(Series 1996) Weekly VRDNs (Atlas Container Corp.
Project)/(Mellon Bank N.A., Pittsburgh LOC)
850,000 Baltimore County, MD, Revenue Bonds (1994 Issue) Weekly VRDNs 850,000
(Direct Marketing Associates, Inc. Facility)/(First National
Bank of Maryland, Baltimore LOC)
1,000,000 Maryland State Community Development Administration, (Series 1,000,000
1990A) Weekly VRDNs (College Estates)/(First National Bank of
Maryland, Baltimore LOC)
500,000 Wicomico County, MD, EDRB (Series 1994) Weekly VRDNs (Field 500,000
Container Co. L.P.)/(Northern Trust Co., Chicago, IL LOC)
&NBSP;&NBSP;&NBSP;&NBSP;TOTAL 2,950,000
MINNESOTA--1.5%
5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs (Jerome 5,000,000
Foods)/(Norwest Bank Minnesota, Minneapolis LOC)
3,100,000 Lino Lakes, MN, Variable Rate Demand IDRBs (Series 1997) 3,100,000
Weekly VRDNs (Taylor Corp.)/ (Norwest Bank Minnesota,
Minneapolis LOC)
TOTAL 8,100,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
NEBRASKA--1.5%
$ 8,400,000 Stanton County, NE, IDRB (Series 1996) Weekly VRDNs (Nucor $ 8,400,000
Corporation)/(Nucor Corporation GTD)
NEW YORK--2.7%
14,505,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue 14,505,000
Bonds (Series 1994C) Weekly VRDNs (American Ref-Fuel
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
NORTH DAKOTA--0.2%
1,000,000 Fargo, ND, Variable Rate Demand IDRB's (Series 1997) Weekly 1,000,000
VRDNs (Owen Industries, Inc.)/ (Mellon Bank N.A., Pittsburgh
LOC)
OHIO--3.0%
6,500,000 Dayton, OH, Airport Improvement BAN's (Series 1996), 3.80% 6,501,242
BANs, 12/16/1997
6,500,000 (b)Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly 6,500,000
VRDNs (GNMA COL)/(Bank of New York, New York LIQ)
3,000,000 Ohio State Public Facilities Commission, Higher Ed Capital 3,001,058
Facilities Revenue Bonds, 4.25% Bonds (AMBAC INS), 12/1/1997
TOTAL 16,002,300
PENNSYLVANIA--3.8%
7,000,000 (b)Pennsylvania Housing Finance Authority, Merlots (Series K) 7,000,000
Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LIQ)
13,500,000 Pennsylvania State Higher Education Assistance Agency, 13,500,000
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC)
TOTAL 20,500,000
RHODE ISLAND--0.9%
4,900,000 Rhode Island Housing & Mortgage Finance Corp., Homeownership 4,900,000
Opportunity Bonds (Series 22-B), 3.70% TOBs, Mandatory Tender
12/1/1997
SOUTH DAKOTA--2.1%
11,400,000 South Dakota Housing Development Authority, Homeownership 11,400,000
Mortgage Bonds (1997 Series E) Weekly VRDNs
TENNESSEE--0.6%
300,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui 300,000
Ta Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd.
LOC)
3,000,000 (b)Tennessee Housing Development Agency, (Series C) Weekly 3,000,000
VRDNs (Bank of America NT and SA, San Francisco LIQ)
TOTAL 3,300,000
</TABLE>
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
TEXAS--2.1%
$ 2,100,000 Angelina and Neches River Authority, Texas, Solid Waste $ 2,100,000
Disposal Revenue Bonds (Series 1993), 4.00% CP (Temple-Eastex
Inc. Project)/(Temple-Inland, Inc. GTD), Mandatory Tender
12/5/1997
9,000,000 Tarrant County, TX IDC, (Series 1997) Weekly VRDNs (Lear 9,000,000
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC)
TOTAL 11,100,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 540,035,560
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 56.5% of the
portfolio as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation, MIG1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1
and F-2 by Fitch Investors Service, Inc. are considered rated in one of the two
highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) as identified as Second Tier securities. The
Fund follows application regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
99.61% 0.39%
(b) Denotes a restricted security which is subject to
restrictions on resale under Federal Securities laws. At October 31, 1997, these
securities amounted to $87,835,000 which represents 16.19% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($542,616,413) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation
Notes COL --Collateralized CP --Commercial Paper EDRB --Economic Development
Revenue Bonds FGIC --Financial Guaranty Insurance Company FSA --Financial
Security Assurance GNMA --Government National Mortgage Association GTD
- --Guaranty HFA --Housing Finance Authority HFDC --Health Facility Development
Corporation IDA --Industrial Development Authority IDB --Industrial Development
Bond IDC --Industrial Development Corporation IDR --Industrial Development
Revenue IDRB --Industrial Development Revenue Bond INS --Insured INV
- --Investment Agreement IRB --Industrial Revenue Bond ISD --Independent School
District LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond
Investors Assurance PLC --Public Limited Company SFM --Single Family Mortgage
TANs --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate
Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FLORIDA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 540,035,560
Cash 450,816
Income receivable 3,214,267
Receivable for shares sold 1,685
Deferred organizational costs 8,883
Deferred expenses 15,764
Total assets 543,726,975
LIABILITIES:
Payable for shares redeemed $ 30,064
Income distribution payable 942,290
Accrued expenses 138,208
Total liabilities 1,110,562
Net Assets for 542,616,413 shares outstanding $ 542,616,413
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$479,860,500 / 479,860,500 shares outstanding $1.00
CASH II SHARES:
$62,755,913 / 62,755,913 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FLORIDA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 21,347,290
EXPENSES:
Investment advisory fee $ 2,318,654
Administrative personnel and services fee 437,669
Custodian fees 46,624
Transfer and dividend disbursing agent fees and 63,469
expenses
Directors'/Trustees' fees 7,427
Auditing fees 13,125
Legal fees 9,088
Portfolio accounting fees 116,872
Distribution services fee--Cash II Shares 217,783
Shareholder services fee--Institutional Shares 1,231,376
Shareholder services fee--Cash II Shares 217,783
Share registration costs 44,752
Printing and postage 20,661
Insurance premiums 5,790
Taxes 848
Miscellaneous 8,397
Total expenses 4,760,318
Waivers --
Waiver of investment advisory fee $ (1,092,531)
Waiver of distribution services fee--Cash II Shares (43,985)
Waiver of shareholder services fee--Institutional (295,530)
Shares
Total waivers (1,432,046)
Net expenses 3,328,272
Net investment income $ 18,019,018
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FLORIDA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 18,019,018 $ 12,310,459
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (15,508,497) (10,917,907)
Cash II Shares (2,510,521) (1,392,552)
Change in net assets resulting from distributions to (18,019,018) (12,310,459)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,742,878,407 2,270,320,962
Net asset value of shares issued to shareholders in payment 11,374,153 6,801,443
of distributions declared
Cost of shares redeemed (1,744,452,792) (1,897,652,278)
Change in net assets resulting from share transactions 9,799,768 379,470,127
Change in net assets 9,799,768 379,470,127
NET ASSETS:
Beginning of period 532,816,645 153,346,518
End of period $ 542,616,413 $ 532,816,645
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FLORIDA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Florida Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and Cash II
Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity and to
maintain an investement portfolio that will cause its shares to be exempt from
the Florida intangibles tax.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees. The Fund will not incur any registration costs upon such
resales. Restricted securities are valued at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Clipper FL Tax Exempt Trust 6/14/1997 & $ 13,420,000
Class A 6/19/1997
Escambia Cty, FL HFA 12/3/1996 2,000,000
P-Floats PA-129
Escambia Cty, FL HFA 3.90% 8/19/1997 4,620,000
TOBs
Escambia Cty, FL HFA 6/5/1997 14,180,000
Variable Rate Cert
FL HFA HMRB PT-88 9/27/1996 6,920,000
FL State Dept of 7/23/1996 2,500,000
Transportation
Fort Myers, FL PA-180 10/10/1997 2,860,000
Jacksonville Transportation 8/13/1997 3,295,000
Authority PA-163
Pinellas County Industry 11/29/1994 & 3,500,000
Council, FL IDRB 1/18/1995
Pinellas County FL HFA SFM 3/5/1995 2,260,000
Rev Bonds
Sarasota County FL IDRB 11/15/1994 2,280,000
TEB Municipal Trust I Class 8/27/1996 13,500,000
A
Ohio HFA Trust Receipts 9/15/1997 6,500,000
Pennsylvania HFA 7/21/1997 7,000,000
Tennessee HDA 10/30/1997 3,000,000
</TABLE>
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Period Ended October 31,
Institutional Shares 1997 1996
<S> <C> <C>
Shares sold 1,408,372,551 1,967,231,853
Shares issued to shareholders in payment of distributions 11,369,710 6,801,419
declared
Shares redeemed (1,440,874,666) (1,626,386,885)
Net change resulting from Institutional Share (21,132,405) 347,646,387
transactions
<CAPTION>
Period Ended October 31,
Cash II Shares 1997 1996
<S> <C> <C>
Shares sold 334,505,856 303,089,109
Shares issued to shareholders in payment of distributions 4,443 24
declared
Shares redeemed (303,578,126) (271,265,393)
Net change resulting from Cash II Share transactions 30,932,173 31,823,740
Net change resulting from share transactions 9,799,768 379,470,127
</TABLE>
At October 31, 1997, capital paid-in aggregated $542,616,413.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp.("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Shares and Cash II Shares. The Plan provides that the Fund may
incur distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS ASSETS OF CLASS
Institutional Shares 0.25%
Cash II Shares 0.25%
The distributor may voluntarity choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion. For the year ended October 31, 1997, the Institutional Shares
did not incur a distribution services fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services, the Fund will pay Federated Shareholder Services ("FSS") up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ Company maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Fund's average daily net assets for
the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $15,374 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $3,160 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Trust engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $1,728,450,000 and $1,454,300,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 50.2% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 4.4% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (FLORIDA
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Florida
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio of
investments, as of October 31, 1997 and the related statement of operations for
the year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 12 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Florida Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
Florida Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Cash II Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
FLORIDA MUNICIPAL CASH TRUST
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 PPG Place
Pittsburgh, PA 15222
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 314229683
G00537-02-CII (12/97)
[Graphic]
FLORIDA MUNICIPAL CASH TRUST
INSTITUTIONAL SHARES
CASH II SHARES
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus(es)
of Florida Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
FLORIDA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229758
Cusip 314229683
G00537-01 (12/97)
[Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
FLORIDA INVESTMENT RISKS 2
INVESTMENT LIMITATIONS 2
Selling Short and Buying on Margin 2
Issuing Senior Securities and Borrowing Money 2
Pledging Assets 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Underwriting 3
Concentration of Investments 3
Investing in Illiquid Securities 3
Investing for Control 3
Investing in Options 3
Regulatory Compliance 4
FEDERATED MUNICIPAL TRUST MANAGEMENT 4
Share Ownership 7
Trustee Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Investment Adviser 8
Advisory Fees 9
BROKERAGE TRANSACTIONS 9
OTHER SERVICES 9
Fund Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 9
Independent Public Accountants 10
Distribution Plan and Shareholder Services 10
DETERMINING NET ASSET VALUE 10
REDEMPTION IN KIND 10
MASSACHUSETTS PARTNERSHIP LAW 11
THE FUND'S TAX STATUS 11
PERFORMANCE INFORMATION 11
Yield 11
Effective Yield 11
Tax-Equivalent Yield 11
Tax-Equivalency Table 12
Total Return 13
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and
Bank Broker/Dealer Subsidiaries 15
APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
FLORIDA INVESTMENT RISKS
Although Florida's growth continues to be among the fastest in the nation, its
pace is moderating. Job growth of 3% for 1996 was still 1% above the national
average, but was the lowest since 1992. Gains were seen in business services and
tourism, but manufacturing has recently experienced declines.
Unemployment is consistent with national averages.
Population growth is also decelerating. From 1991 to 1996, Florida's population
growth rate was thirteenth in the nation. Demographic trends are shifting also;
the over-65 group is no longer the fastest growing segment.
Florida's debt structure is complex, and differs from most other states in that
most issues are secured by specific taxes with the state's full faith and credit
as a back-up. Florida's debt levels have risen with its population, and large
expenditures for infrastructure are need in the future.
In Florida, a state income tax is unconstitutional. The resulting dependence
upon volatile sales tax revenues leaves the state vulnerable to recession.
In 1994, voters approved a revenue limit which limits annual revenue growth to
the average of personal income growth over the preceding five years. At a local
level, governments and school districts face strict limitations on raising
revenues without voter approval. These limits at state and local level may
conflict with Florida's pressing needs.
During 1997, the city of Miami faced serious fiscal difficulties. Miami is
addressing these problems under state oversight.
The Fund's concentration in securities issued by the state and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of a state or its
municipalities to meet their obligation will depend on the availability of tax
and other revenues; economic, political and demographic conditions within the
state; and the underlying condition of the state and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or hold
portfolio securities permitted by its investment objective, policies, and
limitations or the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited partnership
interests, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in any one
industry, or in industrial development bonds or other securities the interest
upon which is paid from revenues of similar types of projects, except that the
Fund may invest 25% or more of the value of its total assets in cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies, or instrumentalities and repurchase agreements collateralized
by such U.S. government securities.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees, non-negotiable time deposits
and repurchase agreements providing for settlement in more than seven days after
notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center--Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of Florida Municipal Cash Trust: Charles
Schwab & Company Inc., (as record owner holding Institutional Shares for its
clients), San Francisco, California, owned approximately 327,543,793 shares
(64.69%).
As of November 24, 1997, the following shareholder of record owned 5% or more of
the outstanding Cash II Shares of Florida Municipal Cash Trust: Trustman, (as
record owner holding Cash II Shares for its clients), Atlanta, Georgia, owned
approximately 131,574,932 shares (99.84%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $2,318,654, $1,558,498, and
$522,992, respectively, of which $1,092,531, $1,071,607, and $480,076,
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $437,669, $294,886,
and $125,000, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Plan, the Trustees expect that the Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, payments in the amount of $217,783
were made pursuant to the Plan for Cash II Shares, $173,798 of which was paid to
financial institutions. In addition, for the fiscal year ended October 31, 1997,
the Fund earned shareholder service fees in the amounts of $1,231,376 and
$217,783, on behalf of Institutional Shares and Cash II Shares, respectively, of
which $935,846 and $217,783, respectively, was paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yields for Institutional
Shares and Cash II Shares were 3.28% and 3.02%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yields for
Institutional Shares and Cash II Shares were 3.33% and 3.07%, respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 39.6% tax rate (the maximum effective federal
rate for individuals) and assuming that the income is 100% tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yields for
Institutional Shares and Cash II Shares were 4.63% and 4.26%, respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF FLORIDA
FEDERAL INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1 $41,201 $99,601 $151,751 OVER
RETURN 41,200 99,600 151,750 271,050 271,050
SINGLE $1 $24,651 $59,751 $124,651 OVER
RETURN 24,650 59,750 124,650 271,050 271,050
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
Note: The State of Florida levies a tax on intangible personal property, such as
stocks, bonds and other evidences of indebtedness, at the rate of $2.00 per
$1,000 of the properties' market value as of January 1st. Because this is a tax
on the value of an investment as opposed to the income generated therefrom, it
becomes more difficult to include its effect in an income-derived equivalent
yield table. In an effort to simplify your analysis, this table has been
prepared assuming an across-the-board 20 basis point incremental benefit
resulting from the avoidance of this tax.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year period ended October 31, 1997, and for the period from
September 21, 1994, (date of initial public investment), through October 31,
1997, the average annual total returns were 3.20% and 3.33%, respectively, for
Institutional Shares. For the one-year period ended October 31, 1997, and for
the period from November 27, 1995 (date of initial public investment) through
October 31, 1997, the average annual total returns were 2.94% and 2.98%,
respectively, for Cash II Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime, and 21 municipal with
assets approximating $28.0 billion, $12.8 billion, and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1-- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus sign (+) designation.
SP-2-- Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1-- This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA --Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-- Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A-- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2-- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
MASSACHUSETTS MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Massachusetts Municipal Cash Trust (the
"Fund") offered by this prospectus represent interests in a portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Massachusetts
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Massachusetts, or its political subdivisions and financing authorities, but
which provide current income exempt from federal regular income tax and
Massachusetts state income tax consistent with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses........................... 1
Financial HighlightsNInstitutional Service Shares.. 2
General Information................................ 3
Investment Information............................. 3
Investment Objective............................... 3
Investment Policies................................ 3
Massachusetts Municipal Securities................. 5
Investment Risks................................... 5
Investment Limitations............................. 5
Fund Information................................... 6
Management of the Fund............................. 6
Distribution of Institutional Service Shares....... 6
Administration of the Fund......................... 7
Net Asset Value.................................... 7
How to Purchase Shares............................ 7
Special Purchase Features......................... 8
How to Redeem Shares.............................. 8
Special Redemption Features....................... 9
Account and Share Information..................... 9
Tax Information................................... 10
Federal Income Tax................................ 10
State and Local Taxes............................. 10
Other Classes of Shares........................... 10
Performance Information........................... 10
Financial HighlightsNBoston 1784 Funds Shares..... 12
Financial Statements.............................. 13
Report of Independent Public Accountants.......... 23
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C> <C>
Institutional Service Shares
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............................. None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as applicable).. None
Redemption Fee (as a percentage of amount redeemed, if applicable).. None
Exchange Fee........................................................ None
Annual Operating Expenses
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................... 0.35%
12b-1 Fee........................................................... None
Total Other Expenses................................................ 0.20%
Shareholder Services Fee (after waiver)(2)................... 0.00%
Total Operating Expenses(3)......................................... 0.55%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.95% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period
<TABLE>
<S> <C>
1 year..................................................... $ 6
3 year..................................................... $18
5 year..................................................... $31
10 years................................................... $69
</TABLE>
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTSNINSTITUTIONAL SERVICE SHARES
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996 1995 1994 1993 1992 1991 1990(a)
-------- -------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.05 0.03
Less distributions
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.03)
-------- -------- ------- ------- ------- ------- ------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= ======= ======= ======= =======
Total return (b) 3.09% 3.07% 3.34% 2.14% 1.99% 2.87% 4.63% 2.59%
Ratios to average net assets
Expenses 0.55% 0.55% 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%*
Net investment income 3.05% 3.02% 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%*
Expense waiver/reimbursement (c) 0.40% 0.42% 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%*
Supplemental data
Net assets, end of period (000 omitted) $141,869 $119,739 $99,628 $90,013 $84,524 $85,570 $81,681 $63,483
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 18, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Boston 1784 Funds Shares. This prospectus relates only to
Institutional Service Shares of the Fund, which are designed primarily for
financial institutions acting in an agency capacity as a convenient means of
accumulating an interest in a professionally managed portfolio investing in
short-term Massachusetts municipal securities. The Fund may not be a suitable
investment for retirement plans or for non-Massachusetts taxpayers because it
invests in municipal securities of that state. A minimum initial investment of
$25,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and Massachusetts state income tax consistent with stability
of principal. This investment objective cannot be changed without shareholder
approval. While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and Massachusetts state income
tax. (Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Massachusetts state
income tax ("Massachusetts Municipal Securities"). Examples of Massachusetts
Municipal Securities include, but are not limited to:
. tax and revenue anticipation notes issued to finance
working capital needs in anticipation of receiving taxes or other revenues;
. bond anticipation notes that are intended to be refinanced through a later
issuance of longer-term bonds;
. municipal commercial paper and other short-term notes;
. variable rate demand notes;
. municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and
. participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Massachusetts Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Massachusetts Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Massachusetts
Municipal Securities is subject to the federal alternative minimum tax.
MASSACHUSETTS MUNICIPAL SECURITIES
Massachusetts Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Massachusetts Municipal Securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of Massachusetts Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Massachusetts Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Massachusetts Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Massachusetts
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Massachusetts Municipal Securities which are repayable
out of revenue streams generated from economically related projects or
facilities and/or whose issuers are located in the same state. Sizable
investments in these Massachusetts Municipal Securities could involve an
increased risk to the Fund should any of these related projects or facilities
experience financial difficulties.
Obligations of issuers of Massachusetts Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. The Fund's concentration in Massachusetts
Municipal Securities may entail a greater level of risk than other types of
money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge assets up to 15% of the value of total assets to secure such
borrowings. The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for settlement in
more than seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
THE FUND IS MANAGED BY A BOARD OF TRUSTEES. The Trustees
are responsible for managing the Fund's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
Maximum Average Aggregate
Fee Daily Net Assets
0.150% on the first $250 million 0.125% on the next $250 million 0.100% on the
next $250 million 0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $25,000 over a 90-
day period. Financial institutions may impose different minimum investment
requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Massachusetts
Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Massachusetts Municipal Cash Trust--Institutional Service Shares. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check through ACH will not be wired
until that method of payment has cleared. Proceeds from redemption requests on
holidays when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at the
telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
Redeeming Shares By Mail
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, the following shareholders of record owned 25% or more
of the outstanding shares of the Fund: BankBoston, N.A., Boston, Massachusetts,
owned 100% of the Boston 1784 Funds Shares of the Fund and State Street Bank &
Trust Company, North Quincy, Massachusetts, owned 31.84% of the Institutional
Service Shares of the Fund, and, therefore, may, for certain purposes be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Massachusetts. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
MASSACHUSETTS TAXES
Under existing Massachusetts laws, distributions made by the Fund will not be
subject to Massachusetts personal income taxes to the extent that such dividends
qualify as exempt interest dividends under the Internal Revenue Code, and
represent (i) interest or gain on obligations issued by the Commonwealth of
Massachusetts, its political subdivisions or agencies; or (ii) interest on
obligations of the United States, its territories or possessions to the extent
exempt from taxation by the states pursuant to federal law. Conversely, to the
extent that the distributions made by the Fund are derived from other types of
obligations, such dividends will be subject to Massachusetts personal income
taxes.
Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts excise
tax.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Boston 1784 Funds Shares
that are sold primarily to retail customers of the banking subsidiaries of
BankBoston, N.A. Boston 1784 Funds Shares are sold at net asset value and are
subject to a Shareholder Services Agreement. Investments in Boston 1784 Funds
Shares are subject to a minimum initial investment of $1,000.
Institutional Service Shares and Boston 1784 Funds Shares are subject to certain
of the same expenses.
Expense differences, however, between Institutional Service Shares and Boston
1784 Funds Shares may affect the performance of each class. To obtain more
information and a prospectus for Boston 1784 Funds Shares, investors may call
1-800-BKB-1784.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield, tax-
equivalent yield, and total return. The performance figures will be calculated
separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--BOSTON 1784 FUNDS SHARES
(FORMERLY, 1784 FUNDS SHARES)
(For a share outstanding throughout each period)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996 1995 1994 1993(a)
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.03 0.03 0.03 0.02 0.01
Less distributions
Distributions from net investment income (0.03) (0.03) (0.03) (0.02) (0.01)
------- ------- ------- ------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return (b) 3.07% 3.05% 3.30% 2.05% 1.25%
Ratios to average net assets
Expenses 0.57% 0.58% 0.60% 0.64% 0.65%*
Net investment income 3.03% 3.01% 3.25% 2.09% 1.85%*
Expense waiver/reimbursement (c) 0.39% 0.42% 0.45% 0.35% 0.43%*
Supplemental data
Net assets, end of period (000 omitted) $73,837 $54,667 $46,580 $41,912 $18,143
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 8, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
Massachusetts Municipal Cash Trust
October 31, 1997
Principal
Amount Value
<S> <C> <C>
(a)Short-Term Municipals--100.5%
Massachusetts--95.8%
$ 3,000,000 Amherst-Pelham Regional School District, MA, 4.09% BANs, 2/13/1998 $ 3,002,715
5,000,000 Amherst-Pelham Regional School District, MA, 4.25% BANs, 7/20/1998 5,008,429
2,000,000 Canton, MA, 4.25% BANs, 9/17/1998 2,005,050
3,000,000 Central Berkshire, MA Regional School District, 4.25% BANs, 7/15/1998 3,004,867
1,300,000 Central Berkshire, MA Regional School District, 5.00% BANs, 3/17/1998 1,303,458
1,000,000 Chelmsford, MA, 4.25% BANs, 4/24/1998 1,001,067
3,000,000 Clinton, MA, 4.00% BANs, 11/21/1997 3,000,555
13,944,150 Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) 13,944,150
3,465,000 Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs
(State Street Bank and Trust Co. LIQ) 3,465,000
3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/(Citibank NA, New York LIQ) 3,000,000
3,000,000 Commonwealth of Massachusetts, (1997 Series B) Weekly VRDNs
(Landesbank Hessen-Thueringen, Frankfurt LIQ) 3,000,000
1,500,000 Danvers, Massachusetts, 4.75% BANs, 4/29/1998 1,504,174
3,780,000 Fall River, MA, 4.25% BANs (Fleet National Bank, Providence, R.I. LOC), 8/14/1998 3,789,950
3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) 3,200,000
2,500,000 Holden, MA, 4.25% BANs, 10/1/1998 2,507,683
6,500,000 Massachusetts Bay Transit Authority, (Series C), 3.70% CP (Westdeutsche Landesbank
Girozentrale LOC), Mandatory Tender 11/17/1997 6,500,000
5,500,000 Massachusetts Bay Transit Authority, (Series C), 3.75% CP (Westdeutsche Landesbank
Girozentrale LOC), Mandatory Tender 1/20/1998 5,500,000
8,100,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank
Ltd, Osaka LOC) 8,100,000
2,000,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Endicott College)/(BankBoston, N.A. LOC) 2,000,000
3,225,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little
Wanderers)/(BankBoston, N.A. LOC) 3,225,000
2,300,000 Massachusetts HEFA, (Series B) Weekly VRDNs
(Clark University)/(Sanwa Bank Ltd, Osaka LOC) 2,300,000
2,247,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) 2,247,000
8,615,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) 8,615,000
6,000,000 Massachusetts HEFA, 3.70% CP (Harvard University), Mandatory Tender 11/17/1997 6,000,000
6,000,000 Massachusetts HEFA, 3.70% CP (Harvard University), Mandatory Tender 11/20/1997 6,000,000
500,000 Massachusetts IFA Weekly VRDNs (Berkshire, MA School)/
(National Westminster Bank, PLC, London LOC) 500,000
1,300,000 Massachusetts IFA Weekly VRDNs (Groton School)/
(National Westminster Bank, PLC, London LOC) 1,300,000
5,340,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/
(State Street Bank and Trust Co. LOC) 5,340,000
1,910,000 Massachusetts IFA, (1995 Series A) Weekly VRDNs (Bradford College Issue)/
(BankBoston, N.A. LOC) 1,910,000
300,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/
(Canadian Imperial Bank of Commerce, Toronto LOC) 300,000
3,300,000 Massachusetts IFA, (Series 1992A) Weekly VRDNs (Ogden Haverhill)/
(Union Bank of Switzerland, Zurich LOC) 3,300,000
4,000,000 Massachusetts IFA, (Series 1992B), 3.70% CP (New England Power Co.),
Mandatory Tender 11/18/1997 4,000,000
4,000,000 Massachusetts IFA, (Series 1992B), 3.80% CP (New England Power Co.),
Mandatory Tender 1/20/1998 4,000,000
6,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/
(Fleet Bank of New York LOC) 6,000,000
5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs
(Whitehead Institute for Biomedical Research) 5,800,000
7,100,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury College)/(BankBoston, N.A. LOC) 7,100,000
2,500,000 Massachusetts IFA, (Series 1997) Weekly VRDNs (Massachusetts Society for the
Prevention of Cruelty to Animals)/(Fleet National Bank, Providence, R.I. LOC) 2,500,000
1,425,000 Massachusetts IFA, (Series A) Weekly VRDNs
(Hockomock YMCA)/(Bank of Nova Scotia, Toronto LOC) 1,425,000
5,500,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/
(National Westminster Bank, PLC, London LOC) 5,500,000
5,955,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs
(Emerson College Issue)/(BankBoston, N.A. LOC) 5,955,000
1,080,000 Massachusetts IFA, Revenue Bonds (Series 1995C) Weekly VRDNs
(Edgewood Retirement Community Project)/(Dresdner Bank
Ag, Frankfurt LOC) 1,080,000
5,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue
Bonds (1994 Series C) Weekly VRDNs (Canadian Imperial Bank of
Commerce, Toronto LOC) 5,800,000
5,000,000 Massachusetts Turnpike Authority, PT-135 Weekly VRDNs (MBIA INS)/(Banco Santander LIQ) 5,000,000
2,000,000 Massachusetts Water Resources Authority, (Series 1994), 3.70% CP
(Morgan Guaranty Trust Co., New York LOC), Mandatory Tender 11/21/1997 2,000,000
1,665,400 Millbury, MA, 4.00% BANs, 11/14/1997 1,665,543
3,494,797 Milton, MA, 3.73% BANs, 12/16/1997 3,494,918
1,076,000 Nahant, MA, 4.20% BANs, 8/26/1998 1,077,694
5,000,000 North Andover, MA, 4.00% BANs, 1/22/1998 5,003,244
2,600,000 Paxton, MA, 4.25% BANs, 6/19/1998 2,605,567
2,000,000 Rutland, MA, 4.05% BANs, 6/26/1998 2,001,862
1,100,000 Rutland, MA, 4.10% BANs, 2/13/1998 1,100,905
2,250,000 Seekonk, MA, 4.25% BANs, 8/7/1998 2,254,300
2,500,000 Southborough, MA, 4.00% BANs, 2/6/1998 2,501,919
7,300,000 Springfield, MA, 4.30% BANs (Fleet National Bank,
Providence, R.I. LOC), 11/7/1997 7,300,585
2,000,000 Springfield, MA, 4.40% BANs (Fleet National Bank,
Providence, R.I. LOC), 6/26/1998 2,005,612
1,000,000 Watertown, MA, 4.25% BANs, 5/13/1998 1,001,225
2,500,000 (b)Weymouth, MA, 4.25% BANs, 11/5/1998 2,505,525
------------
Total 206,552,997
------------
Puerto Rico--4.7%
8,000,000 Puerto Rico Government Development Bank, 3.70% CP,
Mandatory Tender 12/11/1997 8,000,000
2,200,000 Puerto Rico Industrial, Tourist, Education, Medical &
Environmental Control Finance
Authority, (Series 1994A), 3.85% CP (Inter American
University of Puerto Rico)/
(Banque Paribas, Paris LOC), Mandatory Tender 12/12/1997 2,200,000
------------
Total 10,200,000
------------
Total Investments (at amortized cost)(c) $216,752,997
============
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSR's") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's
Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc.
are all considered rated in one of the two highest short-term rating
categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSR's in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
First Tier Second Tier
98.08% 1.92%
(b) Represents a delayed delivery security.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($215,706,639) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation
Notes CP --Commercial Paper HEFA --Health and Education Facilities Authority IDA
- --Industrial Development Authority IFA --Industrial Finance Authority INS
- --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal Bond
Investors Assurance PLC --Public Limited Company VRDNs --Variable Rate Demand
Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
Massachusetts Municipal Cash Trust
October 31, 1997
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at amortized cost and value $216,752,997
Cash 130,100
Income receivable 1,648,313
Receivable for shares sold 11,016
------------
Total assets 218,542,426
Liabilities:
Payable for investments purchased $ 2,505,525
Payable for shares redeemed 21,042
Income distribution payable 268,383
Accrued expenses 40,837
------------
Total liabilities 2,835,787
------------
Net Assets for 215,706,639 shares outstanding $215,706,639
------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Service Shares:
$141,869,354 / 141,869,354 shares outstanding $1.00
===========
Boston 1784 Funds Shares:
$73,837,285 / 73,837,285 shares outstanding $1.00
===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
Massachusetts Municipal Cash Trusts
Year Ended October 31, 1997
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $7,245,117
Expenses:
Investment advisory fee $1,006,548
Administrative personnel and services fee 158,069
Custodian fees 18,809
Transfer and dividend disbursing agent fees and expenses 71,716
Directors'/Trustees' fees 2,753
Auditing fees 17,514
Legal fees 7,293
Portfolio accounting fees 61,712
Shareholder services feeNInstitutional Service Shares 366,596
Shareholder services feeNBoston 1784 Funds Shares 137,333
Share registration costs 23,384
Printing and postage 36,595
Insurance premiums 4,026
Miscellaneous 5,471
----------
Total expenses 1,917,819
Waivers--
Waiver of investment advisory fee $ (294,305)
Waiver of shareholder services fee--Institutional Service Shares (366,596)
Waiver of shareholder services fee--Boston 1784 Funds Shares (137,333)
-----------
Total waivers (798,234)
-----------
Net expenses 1,119,585
----------
Net investment income $6,125,532
==========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
Massachusetts Municipal Cash Trust
<TABLE>
Year Ended October 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
OperationsN
Net investment income $ 6,125,532 $ 5,167,035
------------- -------------
Distributions to Shareholders--
Distributions from net investment income
Institutional Service Shares (4,462,883) (3,622,277)
Boston 1784 Funds Shares (1,662,649) (1,544,758)
------------- -------------
Change in net assets resulting from distributions to shareholders (6,125,532) (5,167,035)
------------- -------------
Share Transactions--
Proceeds from sale of shares 682,162,039 533,103,977
Net asset value of shares issued to shareholders in payment of distributions declared 3,135,034 2,757,964
Cost of shares redeemed (643,996,755) (507,663,326)
------------- -------------
Change in net assets resulting from share transactions 41,300,318 28,198,615
------------- -------------
Change in net assets 41,300,318 28,198,615
Net Assets:
Beginning of period 174,406,321 146,207,706
------------- -------------
End of period $ 215,706,639 $ 174,406,321
------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
Massachusetts Municipal Cash Trust
October 31, 1997
Organization
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Massachusetts Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Service Shares and Boston 1784 Funds Shares
(formerly, 1784 Funds Shares and prior to that, Bay Funds Shares). The
investment objective of the Fund is to provide current income exempt from
federal regular income tax and Massachusetts state income tax consistent with
stability of principal.
Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
The Fund's use of the amortized cost method to value its portfolio securities is
in accordance with Rule 2a-7 under the Act.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $215,706,639.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------
1997 1996
------------ ------------
Institutional Service Shares Shares Shares
------------ ------------
<S> <C> <C>
Shares sold 619,964,162 489,456,450
Shares issued to shareholders in payment of distributions declared 1,473,299 1,214,590
Shares redeemed (599,306,953) (470,559,983)
------------ ------------
Net change resulting from Institutional Service Share transactions 22,130,508 20,111,057
============ ============
Year Ended October 31,
---------------------------
1997 1996
------------ ------------
Boston 1784 Funds Shares Shares Shares
------------ ------------
Shares sold 62,197,877 43,647,527
Shares issued to shareholders in payment of distributions declared 1,661,735 1,543,374
Shares redeemed (44,689,802) (37,103,343)
------------ ------------
Net change resulting from Boston 1784 Funds Shares transactions 19,169,810 8,087,558
------------ ------------
Net change resulting from share transactions 41,300,318 28,198,615
============ ============
</TABLE>
Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
Administrative Fee
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Institutional Service Shares for the period. Under the terms of a
Shareholder Services Agreement with BayBank Systems, Inc., the Fund will pay
BayBank Systems, Inc., up to 0.25% of average daily net assets of Boston 1784
Funds Shares for the period. These fees are used to finance certain services for
shareholders and to maintain shareholder accounts. FSS and BayBank Systems. Inc.
may voluntarily choose to waive any portion of their fees. FSS and BayBank
Systems, Inc. can modify or terminate these voluntary waivers at any time at
their sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
Interfund Transactions
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $303,211,550 and $300,210,000,
respectively.
General
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
Concentration of Credit Risk
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 48.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.3% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders
and Board of Trustees of, FEDERATED MUNICIPAL TRUST (MASSACHUSETTS MUNICIPAL
CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust, a Massachusetts business trust), including the schedule of
portfolio of investments, as of October 31, 1997 and the related statement of
operations for the year than ended and the statement of changes in net assets
and the financial highlights (see pages 2 and 12 of the prospectus) for the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1997, by correspondence with
the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Massachusetts Municipal Cash Trust (an investment portfolio of Federated
Municipal Trust), as of October 31, 1997, and the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
Pittsburgh, Pennsylvania,
December 2, 1997
NOTES
NOTES
Massachusetts Municipal Cash Trust
Institutional Service Shares
Prospectus
December 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
Massachusetts Municipal
Cash Trust
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
Cusip 314229303
0032603A-ISS (12/97)
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Institutional Service Shares of Massachusetts Municipal Cash Trust (the "Fund"),
a portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1997.
This Statement is not a prospectus. You may request a copy of a prospectus or a
paper copy of this Statement, if you have received it electronically, free of
charge by calling 1-800-341-7400.
Massachusetts Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229303
0032603B-ISS (12/97)
Table of Contents
- --------------------------------------------------------------------------------
Investment Policies 1
- --------------------------------------------------------------------------------
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment
Companies 2
Massachusetts Investment Risks 2
- --------------------------------------------------------------------------------
Investment Limitations 3
- --------------------------------------------------------------------------------
Federated Municipal Trust Management 5
- --------------------------------------------------------------------------------
Share Ownership 8
Trustees Compensation 9
Trustee Liability 9
Investment Advisory Services 10
- --------------------------------------------------------------------------------
Investment Adviser 10
Advisory Fees 10
Brokerage Transactions 10
- --------------------------------------------------------------------------------
Other Services 10
- --------------------------------------------------------------------------------
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Public Accountants 11
Shareholder Services 11
- --------------------------------------------------------------------------------
Determining Net Asset Value 11
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Redemption in Kind 12
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Massachusetts Partnership Law 12
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The Fund's Tax Status 12
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Performance Information 12
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Yield 12
Effective Yield 12
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Total Return 14
Performance Comparisons 14
Economic and Market Information 14
About Federated Investors 14
- --------------------------------------------------------------------------------
Mutual Fund Market 15
Institutional Clients 15
Trust Organizations 15
Broker/Dealers and Bank Broker/Dealer Subsidiaries 15
Appendix 16
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INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. The Fund or its custodian will take possession
of the securities subject to repurchase agreements, and these securities will be
marked to market daily. In the event that a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
MASSACHUSETTS INVESTMENT RISKS
- --------------------------------------------------------------------------------
The Fund invests in obligations of Massachusetts issuers which results in the
Fund's performance being subject to risks associated with the overall economic
conditions present within Massachusetts (the "Commonwealth"). The following
information is a brief summary of the recent prevailing economic conditions and
a general summary of the Commonwealth's financial status. This information is
based on official statements relating to securities that have been offered by
Massachusetts issuers and from other sources believed to be reliable but should
not be relied upon as a complete description of all relevant information.
The Commonwealth has a diverse economy with manufacturing, education, health
care, computers and financial services all being significant contributors.
Massachusetts is generally considered the leader in research and development
within the biotechnology, software and robotics industries as well as having
many highly prestigious universities. In addition to a highly skilled and
educated workforce, the Commonwealth has one of the higher average per capita
incomes in this country.
Beginning in the late 1980's, economic growth in the New England region and
Massachusetts, in particular, slowed and showed pronounced deterioration in the
construction, real estate, financial and manufacturing sectors. Between 1988 and
1992, there were extensive job losses that resulted in a 10% reduction in the
work force. Also, over the same period, property values in the region
experienced a similar decline. More recently, the Massachusetts economy has
experienced a slight recovery, however, at a slower pace than the nation and
there are signs that this recovery may be slowing. In addition, after years of
above average property value growth, property values have decreased an estimated
6% over the same period.
The two major revenue sources available to cities and towns in Massachusetts are
local property taxes and local aid from the Commonwealth. Property taxes are
subject to limitations imposed by a state-wide initiative approved by the voters
in November, 1980 (commonly known as Proposition 2-1/2), which limits the
property taxes that may be levied by any city or town in any fiscal year to the
lesser of (i) 2.5% of the full valuation of the real estate and personal
property therein or (ii) 2.5% over the previous year's levy limit plus any
growth in the tax base from new construction. In recent years the decrease in
property values due to the recession and the limitations of tax levy growth
imposed by Proposition 2-1/2 have resulted in budget constraints for many cities
and towns.
The overall financial condition of the Commonwealth can also be illustrated by
the changes of its debt ratings. During the period in which the Commonwealth has
experienced its financial difficulties beginning in 1988, its general obligation
long-term debt ratings as determined by Moody's and S & P's decreased from Aa
and AA+ to Baa and BBB respectively. Since then the Commonwealth has had its
debt ratings raised by the two rating agencies to A1 and AA-by Moody's and S&P,
respectively, reflecting improved fiscal performance.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth and its municipalities.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for the clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
non-publicly issued Massachusetts Municipal Securities or temporary investments
or enter into repurchase agreements, in accordance with its investment
objective, policies, and limitations or Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry, or
in industrial development bonds or other securities the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its total
assets are to be invested in the securities of a single issuer, and no more than
25% of its total assets are to be invested in the securities of a single issuer
at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalitites, or similar entities will be
considered a separate issuer if its assets and revenues are separate from those
of the governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
non-governmental issuer are considered to be issued solely by that issuer. If,
in the case of an industrial development bond or government issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for settlement in
more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
- --------------------------------------------------------------------------------
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
- --------------------------------------------------------------------------------
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
- --------------------------------------------------------------------------------
Thomas G. Bigley
15 Old Timber Road
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
- --------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
- --------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
- --------------------------------------------------------------------------------
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Hogue; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation; 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; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Director or Trustee of the
Funds.
- --------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
- --------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
Share Ownership
Officers and Trustees as a group own less than 1% of the Fund's outstanding
shares.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Boston 1784 Funds Shares of Massachusetts Municipal Cash
Trust: BankBoston, Boston, Massachusetts, owned approximately 85,745,033 shares
(100%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of Massachusetts Municipal Cash
Trust: Bob & Co., Boston, Massachusetts, owned approximately 18,674,807 shares
(11.74%) and State Street Bank and Trust Company, North Quincy, Massachusetts,
owned approximately 50,666,742 shares (31.84%).
<TABLE>
<CAPTION>
TRUSTEES COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $ -0- $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,443 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $ -0- $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife and his son, J.
Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund,or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and 1995, the adviser earned $1,006,548, $856,487, and $686,918,
respectively, of which $294,305, $297,835, and $276,299, respectively, were
waived.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and 1995, the Fund paid no brokerage
commissions. Although investment decisions for the Fund are made independently
from those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the adviser to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
- --------------------------------------------------------------------------------
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services served as the Fund's Administrator. For purposes of this Statement of
Additional Information, Federated Services Company and Federated Administrative
Services may hereinafter collectively be referred to as the "Administrators."
For the fiscal years ended October 31, 1997, 1996, and 1995, the Administrators
earned $158,069, $155,108, and $155,000, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to:
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Trustees expect that the Fund will benefit
by: (1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts. For the fiscal year ended
October 31, 1997, the Fund earned shareholder service fees in the amount of
$366,596 on behalf of Institutional Service Shares, none of which was paid to
financial institutions.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.50% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
REDEMPTION IN KIND
- --------------------------------------------------------------------------------
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
- --------------------------------------------------------------------------------
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
- --------------------------------------------------------------------------------
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yield for Institutional
Service Shares was 3.07%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yield for
Institutional Service Shares was 3.11%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 51.60% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt. For the seven-day period ended October 31, 1997, the tax-equivalent
yield for Institutional Service Shares was 6.3%.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MASSACHUSETTS
<S> <C> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE 27.00% 40.00% 43.00% 48.00% 51.60%
- ------------------------------------------------------------------------------------------
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
- ------------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00% 2.74% 3.33% 3.51% 3.85% 4.13%
2.50% 3.42% 4.17% 4.39% 4.81% 5.17%
3.00% 4.11% 5.00% 5.26% 5.77% 6.20%
3.50% 4.79% 5.83% 6.14% 6.73% 7.23%
4.00% 5.48% 6.67% 7.02% 7.69% 8.26%
4.50% 6.16% 7.50% 7.89% 8.65% 9.30%
5.00% 6.85% 8.33% 8.77% 9.62% 10.33%
5.50% 7.53% 9.17% 9.65% 10.58% 11.36%
6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
- --------------------------------------------------------------------------------
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
The Fund's average annual total returns for the one-year and five-year periods
ended October 31, 1997 and for the period from May 18, 1990 (date of initial
public investment) through ended October 31, 1997 were 3.09%, 2.73% and 3.18%,
respectively.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
. Lipper Analytical Services, Inc., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
. 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.
. Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Fund portfolio mangers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
- --------------------------------------------------------------------------------
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund.
As of December 31, 1996, Federated Investors managed more than $50.3 billion in
assets across 50 money market funds, including 18 government, 11 prime and 21
municipal with assets approximating $28.0 billion, $12.8 billion and $9.5
billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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, Federated Securities Corp.
*Source: Investment Company Institute
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNs) AND TENDER OPTION BONDS (TOBs)
RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-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 rate "AA" has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODYS INVESTORS SERVICE, INC.,
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG) (see below). The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNs) AND TENDER OPTION BONDS (TOBs) RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AAA" by S&P or "Aaa" by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AA" by S&P or "Aa" by Moody's.
NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated
"A" by S&P or Moody's.
FITCH INVESTORS SERVICES, INC.,
SHORT-TERM DEBT RATING DEFINITIONS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Massachusetts
Municipal
Cash
Trust
Boston 1784 Funds
Shares
Prospectus
December 31, 1997
Money Market Funds
. Boston 1784 Tax-Free Money Market Fund
. Boston 1784 U.S. Treasury Money
Market Fund
. Boston 1784 Institutional U.S. Treasury
Money Market Fund
. Boston 1784 Prime Money Market Fund
. Boston 1784 Institutional Prime Money
Market Fund
. Massachusetts Municipal Cash Trust-Boston 1784
Funds Shares
Bond Funds
. Boston 1784 Short-Term Income Fund
. Boston 1784 Income Fund
. Boston 1784 U.S. Government Medium-
Term Income Fund
Tax-Exempt Income Funds
. Boston 1784 Tax-Exempt Medium-Term
Income Fund
. Boston 1784 Connecticut Tax-Exempt
Income Fund
. Boston 1784 Florida Tax-Exempt
Income Fund
. Boston 1784 Massachusetts Tax-Exempt
Income Fund
. Boston 1784 Rhode Island Tax-Exempt
Income Fund
Stock Funds
. Boston 1784 Asset Allocation Fund
. Boston 1784 Growth and Income Fund
. Boston 1784 Growth Fund
. Boston 1784 Small Cap Equity Fund
. Boston 1784 Large Cap Equity Fund
. Boston 1784 International Equity Fund
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
www.boston1784funds.com
Federated Securities Corp. is the
distributor for this Fund.
Cusip 314229832
(Federated use only) G00507-01 (12/97)
MF-0136 (12/97)
Massachusetts Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Boston 1784 Funds Shares
(Formerly, 1784 Funds Shares)
Boston 1784 Funds Shares of Massachusetts Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in an investment portfolio of
Federated Municipal Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests primarily in short-term Massachusetts
municipal securities, including securities of states, territories, and
possessions of the United States which are not issued by or on behalf of
Massachusetts or its political subdivisions and financing authorities, but which
are exempt from the federal regular income tax and Massachusetts state income
tax. Shareholders can invest, reinvest or redeem Boston 1784 Funds Shares at any
time with no sales loads or contingent deferred sales charges imposed by the
Fund. Shareholders have access to other portfolios in Boston 1784 Funds.
BOSTON 1784 FUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF BANKBOSTON, N.A. OR ITS AFFIILIATES OR SUBSIDIARIES, ARE NOT
ENDORSED OR GUARANTEED BY BANKBOSTON, N.A. OR ITS AFFILIATES OR SUBSIDIARIES,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTING IN THESE BOSTON 1784
FUNDS SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. SINCE THE FUND MAY
INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in Boston 1784 Funds Shares. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Boston 1784
Funds Shares dated December 31, 1997, with the Securities and Exchange
Commission ("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference into this prospectus. You may request a
copy of the Statement of Additional Information or a paper copy of this
prospectus, if you have received your prospectus electronically, free of charge
by calling 1-800-BKB-1784. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed at the back of this
prospectus. The Statement of Additional Information, material incorporated by
reference into this document and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
Table of Contents
- --------------------------------------------------------------------------------
Fund Expense Summary 1
Financial Highlights -- Boston 1784 Funds Shares 2
General Information 3
Investment Information 5
Investment Objective and Policies 5
Acceptable Investment 5
Massachusetts Municipal Securities 8
Massachusetts Investment Risks 8
Investment Limitations 9
Shareholder Services 10
Pricing of Shares 10
How to Purchase Shares 10
Automatic Investment Program 12
How to Exchange Shares 12
How to Redeem Shares 13
Additional Information You Should Know
Tax Information 16
Performance Information 17
Tax-Equivalency Table 18
Management, Distribution and Administration 19
Investment Adviser 20
Distribution 20
Administration 21
Other Classes of Shares 21
Financial Highlights -- Institutional Service Shares 23
Financial Statements 24
Report of Independent Public Accountants 36
Addresses INSIDE BACK COVER
Fund Expense Summary, Massachusetts Municipal Cash Trust
Boston 1784 Funds Shares (Formerly, 1784 Funds Shares)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Annual Operating Expenses
(As a percentage of average net assets)
Management Fee (after waiver) (1) 0.35%
12b-1 Fee None
Total Other Expenses 0.22%
Shareholder Services Fee (after waiver) (2) 0.00%
Total Operating Expenses (3) 0.57%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.96% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Boston 1784 Funds Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Management, Distribution and Administration."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each
time period $6 $18 $32 $71
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Massachusetts Municipal Cash Trust
Financial Highlights--Boston 1784 Funds Shares
(Formerly, 1784 Funds Shares)
- --------------------------------------------------------------------------------
REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 36.
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NET
NET DISTRIBUTIONS NET ASSETS,
ASSET FROM ASSET EXPENSE END
VALUE, NET NET VALUE, NET WAIVER/ OF PERIOD
BEGINNING INVESTMENT INVESTMENT END TOTAL INVESTMENT REIMBURSE- (000
OF PERIOD INCOME INCOME OF PERIOD RETURN (B) EXPENSES INCOME MENT (C) OMITTED)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended October 31,
1997 $1.00 0.03 (0.03) $1.00 3.07% 0.57% 3.03% 0.39% $73,837
Year Ended October 31,
1996 $1.00 0.03 (0.03) $1.00 3.05% 0.58% 3.01% 0.42% $54,667
Year Ended October 31,
1995 $1.00 0.03 (0.03) $1.00 3.30% 0.60% 3.25% 0.45% $46,580
Year Ended October 31,
1994 $1.00 0.02 (0.02) $1.00 2.05% 0.64% 2.09% 0.35% $41,912
Year Ended October 31,
1993(a) $1.00 0.01 (0.01) $1.00 1.25% 0.65%* 1.85%* 0.43%* $18,143
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Computed on an annualized basis.
(a)Reflects operations for the period from March 8, 1993 (date of initial public
investment) to October 31, 1993.
(b)Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
General Information
- --------------------------------------------------------------------------------
As a shareholder of Boston 1784 Funds Shares class (the "Shares") of the Fund,
you have access to all of the portfolios of Boston 1784 Funds, an open-end
management investment company. Boston 1784 Funds consists of nineteen separate
professionally managed investment portfolios with distinct investment objectives
and policies.
As of the date of this prospectus, Boston 1784 Funds offers shares in nineteen
portfolios:
MONEY MARKET FUNDS
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND, BOSTON 1784 PRIME MONEY MARKET
FUND, BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND and BOSTON 1784
INSTITUTIONAL PRIME MONEY MARKET FUND seek to preserve principal value and
maintain a high degree of liquidity while providing current income.
BOSTON 1784 TAX-FREE MONEY MARKET FUND seeks to preserve principal value and
maintain a high degree of liquidity while providing current income exempt from
federal income tax.
These MONEY MARKET FUNDS are designed for conservative investors who want
liquidity, current income at money market rates and stability of principal.
BOND FUNDS
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND seeks to provide current
income consistent with preservation of capital.
BOSTON 1784 SHORT-TERM INCOME FUND and BOSTON 1784 INCOME FUND seek to maximize
current income. Preservation of capital is a secondary objective.
These BOND FUNDS are designed for investors seeking current income.
TAX-EXEMPT FUNDS
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND seeks to provide current income,
exempt from federal income tax, consistent with preservation of capital.
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND seeks to provide current income
exempt from both federal and Connecticut personal income tax. Preservation of
capital is a secondary objective.
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND seeks to provide current income
exempt from federal income tax through Fund shares which are exempt from Florida
intangible personal property tax. Preservation of capital is a secondary
objective.
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND seeks to provide current
incomeexempt from both federal and Massachusettspersonal income tax consistent
with preservation of capital.
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND seeks to provide current income
exempt from federal income tax, Rhode Island personal income tax and Rhode
Island business corporation tax. Preservation of capital is a secondary
objective.
These TAX-EXEMPT FUNDS are designed for investors seeking income that is exempt
from federal income tax, and who are seeking exemption from certain state taxes
in Connecticut, Florida, Massachusetts and Rhode Island.
STOCK FUNDS
BOSTON 1784 ASSET ALLOCATION FUND seeks to achieve a favorable rate of return
through current income and capital appreciation consistent with preservation of
capital, derived from investing in fixed income and equity securities.
BOSTON 1784 GROWTH AND INCOME FUND seeks to provide long-term growth of capital
with a secondary objective of income.
BOSTON 1784 GROWTH FUND seeks to provide capital appreciation. Dividend income,
if any, is incidental to this objective.
BOSTON 1784 SMALL CAP EQUITY FUND seeks to provide capital appreciation.
Dividend income, if any, is incidental to this objective.
BOSTON 1784 LARGE CAP EQUITY FUND seeks to provide income and capital
appreciation.
BOSTON 1784 INTERNATIONAL EQUITY FUND seeks to provide long-term growth of
capital. Dividend income, if any, is incidental to this objective.
These STOCK FUNDS are designed for long-terminvestors seeking high long-term
returns who can tolerate changes in the value of their investments.
Please call 1-800-BKB-1784 for a free Boston 1784 Funds prospectus. Please read
the prospectus carefully before you invest or send money.
Investment Information
- -------------------------------------------------------------------------------
Investment Objective and Policies
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and Massachusetts state income tax
consistent with stability of principal. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by complying
with the diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its tax-free status when distributed to the Fund's shareholders.
However, income distributed by the Fund may not necessarily be exempt from state
or municipal taxes in states other than Massachusetts.
The Fund pursues its investment objective by investing primarily in a portfolio
of Massachusetts municipal securities with remaining maturities of 13 months or
less. As a matter of investment policy, which cannot be changed without
shareholder approval, at least 80% of the Fund's annual interest income will be
exempt from federal regular income tax and Massachusetts state income tax.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) The
average maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material changes in these policies
become effective.
Acceptable Investments
The Fund invests primarily in debt obligations issued by or on behalf of Mas-
sachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Massachusetts state
income tax ("Massachusetts Municipal Securities").
Examples of Massachusetts municipal securities include, but are not limited to:
. tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
. bond anticipation notes that are intended to be refinanced through a later
issuance of longer-term bonds;
. municipal commercial paper and other short-term notes;
. variable rate demand notes;
. municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and
. participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debtinstruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days' prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See "
Demand Features". The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Massachusetts municipal securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participa- tions, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Fund to treat the income from
the investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Massachusetts municipal securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract or a participation interest on any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities or another third party,
and may not be transferred separately from the underlying security. The Fund
uses these arrangements to provide the Fund with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when- issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-ex- empt or
taxable securities, all of comparable quality to other securities in which the
Fund invests such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Massachu-
setts municipal securities is subject to the federal alternative minimum tax.
Massachusetts Municipal Securities
Massachusetts municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Massachusetts municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire sites
or construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of Massachusetts municipal securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed by
the bond or other specified sources of revenue. Revenue bonds do not represent a
pledge of credit or create any debt of or charge against the general revenues of
a municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
Massachusetts Investment Risks
Yields on Massachusetts municipal securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Massachusetts municipal securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Massachusetts
municipal securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Massachusetts municipal securities which are repayable
out of revenue streams generated from economically related projects or
facilities and/or whose issuers are located in the same state. Sizable
investments in these Massachusetts municipal securities could involve an
increased risk to the Fund should any of these related projects or facilities
experience financial difficulties.
Obligations of issuers of Massachusetts municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Massachusetts municipal securities may entail a greater
level of risk than other types of money market funds.
Investment Limitations
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 15% of the value of total assets to secure such
borrowings. The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
These investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed without shareholder approval.
Shareholders will be notified before any material change in this limitation
becomes effective.
The Fund will not invest more than 10% of the value of its net assets in illiq-
uid securities, including repurchase agreements providing for settlement in more
than seven days after notice.
Shareholder Services
- --------------------------------------------------------------------------------
Pricing of Shares
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting liabilities attributable to shares
from the value of Fund assets attributable to shares, and dividing the remainder
by the number of shares outstanding. The Fund cannot guarantee that its net
asset value will always remain at $1.00 per Share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
The Fund offers Shares only on days on which the New York Stock Exchange and the
Federal Reserve Bank of Boston are open for business ("Business Days"). If
BankBoston, N.A. (the "Shareholder Servicing Agent") receives your purchase
order on a non-Business Day, the order will not be executed until the next
Business Day in accordance with the Distributor's procedures. The Fund and the
Distributor reserve the right to reject any purchase request.
How to Purchase Shares
MINIMUM INVESTMENT. You can become a shareholder with an initial investment of
$1,000. You must submit a completed application at the time of your initial
purchase. Subsequent investments must be in amounts of at least $250, or if you
participate in the automatic investment program, the minimum for additional
Share purchases is $50. The Fund may waive any investment minimums from time to
time. In addition, the Fund may reduce or waive investment minimums for
investors purchasing through qualified BankBoston accounts.
If your purchase order is received in good order and accepted by the Fund from
Federated Shareholder Services Company (the "Transfer Agent") by 1:00 p.m.
(Eastern time) on a Business Day, it will be executed at the net asset value
next determined and your Shares will begin earning dividends that day. The
Transfer Agent will not communicate your purchase order to the Fund until the
Shareholder Servicing Agent has received the purchase price in federal funds or
other immediately available funds. If your purchase order is received in good
order and accepted by the Fund from the Transfer Agent after 1:00 p.m. (Eastern
time), and prior to 4:00 p.m. (Eastern time), it will be executed at the net
asset value next determined and Shares will begin earning dividends the next
Business Day. When you purchase Shares by check, the order is considered
received when the check is converted into federal funds, normally within two
Business Days.
The Shareholder Servicing Agent is responsible for the prompt transmission of
purchase orders received in good order to the Transfer Agent.
BY PHONE. Once you are a shareholder, you may purchase additional Shares by
calling 1-800-BKB-1784.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BKB-1784 to request the necessary
form and information on this Fund feature. The Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, the Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.
For the protection of investors, all phone communications may be recorded where
not otherwise prohibited by law.
BY MAIL . If you make your initial Share purchase by mail, you must send a
completed application and a check payable to Boston 1784 Funds to:
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
You may obtain an application by calling 1-800-BKB-1784.
You may make subsequent investments in the Fund at any time by sending a check
for a minimum of $250 payable to Boston 1784 Funds at the following address:
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent investment form that may
be enclosed in the Fund mailing or can be obtained by calling 1-800-BKB-1784, or
(c) a letter stating the amount of the investment, the name of the Fund, the
exact name and address of the account, and your account number.
If the check does not clear, your purchase order will be cancelled.
BY WIRE. Purchases may also be made by wiring money from your bank account to
your Fund account. Call 1-800-BKB-1784 to receive wiring instructions.
Shares cannot be purchased by wire on days on which the New York Stock Exchange
and the Federal Reserve Wire System are not open for business and on the
following holidays: Martin Luther King Day, Columbus Day and Veterans' Day.
Automatic Investment Program
When you participate in the automatic investment program, you can purchase
additional Shares in minimum amounts of $50. You must previously have authorized
in writing the total dollar amount to be deducted automatically from eligible
BankBoston deposit accounts or your deposit account maintained at a domestic
financial institution which is an automated clearing house member, and the
frequency of the deductions. The funds will be invested in Shares at the net
asset value next determined. The Fund may reduce or waive the investment
minimums for investors purchasing through qualified BankBoston accounts.
How to Exchange Shares
Boston 1784 Funds consist of: Boston 1784 Tax-Free Money Market Fund, Boston
1784 U.S. Treasury Money Market Fund, Boston 1784 Institutional U.S. Treasury
Money Market Fund, Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Fund, Boston 1784 Short-Term Income Fund, Boston 1784
Income Fund, Boston 1784 U.S. Government Medium-Term Income Fund, Boston 1784
Tax-Exempt Medium Term Income Fund, Boston 1784 Connecticut Tax-Exempt Income
Fund, Boston 1784 Florida Tax-Exempt Income Fund, Boston 1784 Massachusetts
Tax-Exempt Income Fund, Boston 1784 Rhode Island Tax-Exempt Income Fund, Boston
1784 Asset Allocation Fund, Boston 1784 Growth and Income Fund, Boston 1784
Growth Fund, Boston 1784 Small Cap Equity Fund, Boston 1784 Large Cap Equity
Fund and Boston 1784 International Equity Fund.
You may redeem Shares and purchase shares of any other Boston 1784 Funds
("Participating Funds") in which you have an account. The minimum initial
investment to establish an account in any other Participating Fund is $1,000
($100,000 for Boston 1784 Institutional U.S. Treasury Money Market Fund and
Boston 1784 Institutional Prime Money Market Fund). Boston 1784 Funds do not
charge any fees for these transactions.
Shares will be redeemed at the net asset value next determined after the
Transfer Agent receives the redemption request and Shares of the Participating
Fund to be acquired will be purchased at the net asset value per share next
determined after receipt of the redemption proceeds by the Transfer Agent for
the acquired fund on a Business Day.
If you do not have an account in the Participating Fund whose shares you want to
acquire, you must establish an account. Prior to any such transaction, you must
receive a copy of the current prospectus of the Participating Fund into which a
purchase is to be effected. This account will be registered in the same name and
you will receive your dividends and distributions as an automatic re- investment
in additional shares. If the new account registration (name, address and
taxpayer identification number) is not identical to your existing account,
please call 1-800-BKB-1784 for the necessary new account or transfer procedures.
You may find this privilege useful if your investment objectives or market
outlook should change after you invest in the Fund or in any of the
Participating Funds. You may obtain further information on this privilege and
obtain a prospectus by calling 1-800-BKB-1784.
The exchange privilege is available to shareholders resident in any state in
which Participating Funds' shares being acquired may be sold.
Boston 1784 Funds reserves the right to terminate this privilege at any time.
Shareholders will be notified if this privilege is terminated.
Depending on the circumstances, an exchange with a fluctuating net asset value
Participating Fund may generate a short-term or long-term capital gain or loss
for federal income tax purposes.
BY PHONE. You may provide instructions to redeem Shares and purchase shares of
any Participating Funds by calling 1-800-BKB-1784.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BKB-1784 to request the necessary
form and information on this Fund feature. The Fund uses reasonable procedures
(including a shareholder identity test and sending a written confirmation of
each telephone transaction) to confirm that instructions given by telephone are
genuine. However, the Fund is not responsible for the authenticity of telephone
instructions or for any losses caused by fraudulent or unauthorized telephone
instructions if the Fund reasonably believed that the instructions were genuine.
BY MAIL. You may send a written request to redeem Shares and purchase shares of
any Participating Funds to:
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
Your written request must include your name and tax identification number; the
name of the Fund, the dollar amount or number of Shares to be redeemed; the name
of the Participating Fund in which shares are to be purchased; and your account
number. Your request must be signed by the registered owner(s) exactly as
required by the account application.
How to Redeem Shares
The Fund redeems Shares at the net asset value next determined after the Fund
has received your redemption request from the Transfer Agent in proper form.
Redemption requests can be executed only on Business Days. If your redemption
request is received by the Shareholder Servicing Agent on a non-Business Day,
the Transfer Agent will not communicate your redemption request to the Fund
until the next Business Day.
Redemption proceeds may be credited to an eligible BankBoston deposit account,
paid by check, or paid by wire or electronic transfer (ACH) as you previously
designated in writing. The Fund ordinarily will make payment for Shares redeemed
after proper receipt from the Transfer Agent of the redemption request and of
all documents in proper form within one Business Day to an eligible BankBoston
deposit account, within ten Business Days if you requested redemption proceeds
by check, or the same day by wire or electronic transfer if the Fund receives
your redemption request from the Transfer Agent by 12:00 noon (Eastern time) on
the day of redemption. There is a fee for each wire and your bank may charge an
additional fee to receive the wire. Shares redeemed and wired or transferred
electronically the same day will not receive the dividend declared on the day of
redemption.
SIGNATURE GUARANTEES. If you request a redemption for an amount in excess of
$100,000, a redemption of any amount to be sent to an address other than your
address of record with the Fund or that has changed within the preceding 30
days, the transfer of the registration of Shares, or a redemption of any amount
payable to someone other than yourself as the shareholder of record, your
signature must be guaranteed on a written redemption request by a trust company
or insured commercial bank; an insured savings association or savings bank; a
member firm of a national or regional stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. At
the Fund's discretion, signature guarantees may also be required for other
redemptions. The Transfer Agent has adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund does not accept signatures guaranteed by a
notary public. The Fund and the Transfer Agent reserve the right to amend these
standards at any time without notice. If you have a question about the proper
form for redemption requests, call 1-800-BKB-1784.
BY PHONE. You may redeem Shares by calling 1-800-BKB-1784.
You must have previously authorized the Fund in writing to accept telephone
requests. If you have not done so, call 1-800-BKB-1784 to request the necessary
form.
In the event of drastic economic or market changes, you may experience
difficulty in redeeming by telephone. If this occurs, you should consider
another method of redemption, such as by mail or by wire (see below). The Fund
uses reasonable procedures (including a shareholder identity test and sending a
written confirmation of each telephone transaction) to confirm that instructions
given by telephone are genuine. However, the Fund is not responsible for the
authenticity of telephone instructions or for any losses caused by fraudulent or
unauthorized telephone instructions if the Fund reasonably believed that the
instructions were genuine.
BY MAIL. You may redeem Shares by submitting a written request for redemption
to:
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
Your written request must include your name and tax identification number, the
Fund's name, the dollar amount or number of Shares to be redeemed, and your
account number. Your request must be signed by the registered owner(s) exactly
as required by the account application.
BY WIRE. You may redeem Shares by wire by calling 1-800-BKB-1784. Redemption
proceeds will be wired directly to the domestic commercial bank and account you
previously designated in writing. You are charged a fee for each wire redemption
and the fee is deducted from your redemption proceeds.
The Fund reserves the right to wire redemption proceeds within seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect the Fund. The Fund also reserves the right to terminate or
modify the telephone and wire redemption procedures at any time. In that event,
shareholders would be promptly notified. Neither the Fund, the Transfer Agent,
the Sub-Transfer Agent, nor the Shareholder Servicing Agent will be responsible
for the authenticity of redemption instructions received by phone.
Additional Information You Should Know
- --------------------------------------------------------------------------------
MINIMUM BALANCE. Due to the high cost of maintaining accounts with low balances,
the Fund may redeem your Shares and send you the proceeds if, due to shareholder
redemptions, your account balance falls below a minimum value of $1,000.
However, before Shares are redeemed to close an account, the shareholder will be
notified in writing and given 60 days to purchase additional Shares to meet the
minimum balance requirement. The Fund reserves the right to amend this standard
upon 60 days' prior written notice to shareholders. The Fund also reserves the
right to redeem Shares involuntarily or make payment for redemptions in the form
of securities if it appears appropriate to do so in light of the Fund's
responsibilities under the Investment Company Act of 1940.
CONFIRMATIONS AND ACCOUNT STATEMENTS. Shareholders will receive detailed
confirmations of transactions. In addition, shareholders will receive periodic
statements reporting all account activity, including dividends paid. The Fund
will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS. Dividends from the Fund's net investment income are
declared daily to shareholders of record immediately following the 1:00 p.m.
(Eastern time) pricing of Shares. Dividends are paid monthly within five
Business Days after the end of such calendar month. The Fund does not expect to
realize any net long-term capital gains. However, if any such gains are
realized, they will be distributed to shareholders at least annually.
You will receive your dividends and distributions as an automatic reinvestment
in additional Shares at the net asset value next determined on the payment
dates.
Tax Information
FEDERAL INCOME TAX. The Fund will not pay federal income tax since it expects to
meet requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase all types of municipal bonds, including private activity
bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
MASSACHUSETTS TAXES. Under existing Massachusetts laws, distributions made by
the Fund will not be subject to Massachusetts personal income taxes to the
extent that such dividends qualify as exempt interest dividends under the
Internal Revenue Code, and represent (i) interest or gain on obligations issued
by the Commonwealth of Massachusetts, its political subdivisions or agencies; or
(ii) interest on obligations of the United States, its territories or
possessions exempt from taxation by the states pursuant to federal law.
Conversely, to the extent that the distributions made by the Fund are derived
from other types of obligations, such dividends will be subject to Massachusetts
personal income taxes.
Shareholders subject to the Massachusetts corporate excise tax must include all
dividends paid by the Fund in their net income, and the value of their shares of
stock in the Fund in their net worth, when computing the Massachusetts excise
tax.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
taxes in states other than Massachusetts. Shareholders are urged to consult
their own tax advisers regarding the status of their accounts under state and
local tax laws.
Performance Information
From time to time, in advertisements or in reports to shareholders, the
performance, total return and yield of the Fund may be quoted and compared to
those of other mutual funds with similar investment objectives and to relevant
money market indices, or to rankings prepared by independent services or other
financial or industry publications, that monitor the performance of mutual
funds. For example, the performance of the Fund may be compared to data prepared
by Lipper Analytical Services, Inc., a widely recognized independent service
which monitors the performance of mutual funds.
National financial publications in which performance and yield data are reported
may include The Wall Street Journal, The New York Times, Forbes, or Money
magazine. Publications of a local or regional nature, such as The Boston Globe
or The Boston Herald, may also be used in comparing the performance, total
return and yield of the Fund.
YIELD. Yield represents the annualized rate of income earned on an investment
over a seven day period. It is the annualized dividends earned during the period
on the investment shown as a percentage of the investment. The effective yield
is calculated similarly to the yield but, when annualized, the income earned by
an investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
TAX-EQUIVALENT YIELD. The tax-equivalent yield for the Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Fund would have had to earn to equal its actual yield, assuming a 39.6% federal
tax rate and the 12% regular personal income tax rate imposed by Massachusetts
and assuming that income earned by the Fund is 100% tax-exempt on a regular
federal, state, and local basis.
For the seven day periods ended October 31, 1997 and November 30, 1997, the
tax-equivalent yields for Boston 1784 Funds Shares were 5.05% and 5.5%,
respectively.
TOTAL RETURN. Total return represents the change, over a specified period of
time, in the value of an investment in the Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield, effective yield, tax-equivalent yield and total return will be calculated
separately for Boston 1784 Funds Shares and Institutional Service Shares.
Tax-Equivalency Table
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax*, and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment is an
attractive choice for investors, particularly in times of narrow spreads between
tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MASSACHUSETTS
<S> <C> <C> <C> <C> <C>
Tax
Bracket:
Federal 15.00% 28.00% 31.00% 36.00% 39.60%
- ------------------------------------------------------
Combined
Federal
and
State 27.00% 40.00% 43.00% 48.00% 51.60%
- ------------------------------------------------------
Joint $1- $40,201- $99,601- $151,751- Over
Return: 40,200 99,600 151,750 271,050 $271,050
Single $1- $24,651- $59,751- $124,651- Over
Return: 24,650 59,750 124,650 271,050 $271,050
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX TAXABLE
EXEMPT YIELD
YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 2.05% 2.50% 2.63% 2.88% 3.10%
2.00 2.74 3.33 3.51 3.85 4.13
2.50 3.42 4.17 4.39 4.81 5.17
3.00 4.11 5.00 5.26 5.77 6.20
3.50 4.79 5.83 6.14 6.73 7.23
4.00 5.48 6.67 7.02 7.69 8.26
4.50 6.16 7.50 7.89 8.65 9.30
5.00 6.85 8.33 8.77 9.62 10.33
5.50 7.53 9.17 9.65 10.58 11.36
6.00 8.22 10.00 10.53 11.54 12.40
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable equivalent yield. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart is for illustrative purposes only. It is not an indicator of past or
future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
Management, Distribution and Administration
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees ("Trustees") has established two classes of shares, Boston 1784 Fund
Shares and Institutional Service Shares. This prospectus relates only to Boston
1784 Funds Shares of the Fund which are designed primarily for individuals,
partnerships and corporations who seek a convenient means of accumulating an
interest in a professionally managed portfolio limited to short-term
Massachusetts municipal securities. The Fund is not likely to be a suitable
investment for non-Massachusetts taxpayers or retirement plans since it intends
to invest primarily in Massachusetts municipal securities.
VOTING RIGHTS. Each Share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of all classes of each portfolio in the Trust
have equal voting rights, except in matters affecting only a particular
portfolio or class when only shareholders of that portfolio or class are
entitled to vote.
The Trust is not required to hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the Trust's or the Fund's
operation and for the election of Trustees under certain circumstances. Trustees
may be removed by the Trustees or by shareholders at a special meeting. A
special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust.
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the business affairs of the Trust and for exercising all of the powers
of the Trust except those reserved for the shareholders. An Executive Committee
handles the Trustees' responsibilities between meetings of the Trustees.
As of November 24, 1997, the following shareholders of record owned 25% or more
of the outstanding shares of the Fund: BankBoston, N.A., Boston, Massa-
chusetts, owned 100% of the Boston 1784 Funds Shares of the Fund and State
Street Bank & Trust Company, North Quincy, Massachusetts, owned 31.84% of the
Institutional Service Shares of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Investment Adviser
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser subject to direction by the Trustees. The adviser continually
conducts investment research and supervision for the Fund and is responsible for
the purchase or sale of portfolio instruments.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets. The Adviser may voluntarily waive
a portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States.
Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of employees'
own interest. Among other things, the codes: require preclearance and periodic
reporting of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase or sale, by
the Fund; prohibit purchasing securities in initial public offerings; and
prohibit taking profits on securities held for less than sixty days. Violations
of the codes are subject to review by the Trustees, and could result in severe
penalties.
Distribution
Federated Securities Corp. is the principal distributor (the "Distributor")
for the Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICING ARRANGEMENTS. The Distributor may pay financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide certain services to shareholders. These
services may include, but are not limited to, distributing prospectuses and
other information, providing accounting assistance, and communicating or
facilitating purchases and redemptions of shares. Any fees paid for these
services by the Distributor will be reimbursed by the Adviser and not the Fund.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the administrative services.
Administration
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Fund at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
SHAREHOLDER SERVICING AGENT. BankBoston, N.A., Boston, Massachusetts, is the
shareholder servicing agent for Boston 1784 Funds Shares. The Fund may pay the
Shareholder Servicing Agent a fee based on the average daily net asset value of
Shares for which it provides shareholder services. These shareholder services
include, but are not limited to, distributing prospectuses and other
information, providing shareholder assistance, and communicating or facilitating
purchases and redemptions of Shares. This fee will be equal to 0.25% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time.
Other Classes of Shares
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold to accounts for which financial
institutions act in an agency capacity. Investments in Institutional Service
Shares are subject to a minimum initial investment of $25,000 over a 90-day
period. Institutional Service Shares are sold at net asset value.
Instututional Service Shares and Boston 1784 Funds Shares are subject to certain
of the same expenses. Institutional Service Shares are distributed with no 12b-1
fees, but are subject to shareholder services fees.
Expense differences, however, between Institutional Service Shares and Boston
1784 Funds Shares may affect the performance of each class.
To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-341-7400.
<PAGE>
Massachusetts Municipal Cash Trust
Financial Highlights -- Institutional Service Shares
- --------------------------------------------------------------------------------
REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 36.
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NET
NET NET ASSETS,
ASSET DISTRIBUTIONS ASSET EXPENSE END
VALUE, NET FROM NET VALUE, NET WAIVER/ OF PERIOD
BEGINNING INVESTMENT INVESTMENT END TOTAL INVESTMENT REIMBURSE- (000
OF PERIOD INCOME INCOME OF PERIOD RETURN (B) EXPENSES INCOME MENT (C) OMITTED)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended October 31,
1997 $1.00 0.03 (0.03) $1.00 3.09% 0.55% 3.05% 0.40% $141,869
Year Ended October 31,
1996 $1.00 0.03 (0.03) $1.00 3.07% 0.55% 3.02% 0.42% $119,739
Year Ended October 31,
1995 $1.00 0.03 (0.03) $1.00 3.34% 0.55% 3.30% 0.45% $99,628
Year Ended October 31,
1994 $1.00 0.02 (0.02) $1.00 2.14% 0.55% 2.12% 0.35% $90,013
Year Ended October 31,
1993 $1.00 0.02 (0.02) $1.00 1.99% 0.53% 1.97% 0.43% $84,524
Year Ended October 31,
1992 $1.00 0.03 (0.03) $1.00 2.87% 0.34% 2.82% 0.55% $85,570
Year Ended October 31,
1991 $1.00 0.05 (0.05) $1.00 4.63% 0.30% 4.48% 0.69% $81,681
Year Ended October 31,
1990(a) $1.00 0.03 (0.03) $1.00 2.59% 0.17%* 5.66%* 0.57%* $63,483
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Computed on an annualized basis.
(a)Reflects operations for the period from May 18, 1990 (date of initial public
investment) to October 31, 1990.
(b)Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Massachausetts Municipal Cash Trust
Portfolio of Investments
- --------------------------------------------------------------------------------
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--100.5%
MASSACHUSETTS--95.8%
$3,000,000 Amherst-Pelham Regional School District, MA, 4.09%
BANs, 2/13/1998 $ 3,002,715
----------------------------------------------------
5,000,000 Amherst-Pelham Regional School District, MA, 4.25%
BANs, 7/20/1998 5,008,429
----------------------------------------------------
2,000,000 Canton, MA, 4.25% BANs, 9/17/1998 2,005,050
----------------------------------------------------
3,000,000 Central Berkshire, MA Regional School District,
4.25% BANs, 7/15/1998 3,004,867
----------------------------------------------------
1,300,000 Central Berkshire, MA Regional School District,
5.00% BANs, 3/17/1998 1,303,458
----------------------------------------------------
1,000,000 Chelmsford, MA, 4.25% BANs, 4/24/1998 1,001,067
----------------------------------------------------
3,000,000 Clinton, MA, 4.00% BANs, 11/21/1997 3,000,555
----------------------------------------------------
13,944,150 Clipper, MA Tax Exempt Trust Weekly VRDNs (State
Street Bank and Trust Co. LIQ) 13,944,150
----------------------------------------------------
3,465,000 Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly
VRDNs (State Street Bank and Trust Co. LIQ) 3,465,000
----------------------------------------------------
3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC
INS)/(Citibank NA, New York LIQ) 3,000,000
----------------------------------------------------
3,000,000 Commonwealth of Massachusetts, (1997 Series B)
Weekly VRDNs (Landesbank Hessen-Thueringen,
Frankfurt LIQ) 3,000,000
----------------------------------------------------
1,500,000 Danvers, Massachusetts, 4.75% BANs, 4/29/1998 1,504,174
----------------------------------------------------
3,780,000 Fall River, MA, 4.25% BANs (Fleet National Bank,
Providence, R.I. LOC), 8/14/1998 3,789,950
----------------------------------------------------
3,200,000 Framingham, MA IDA Weekly VRDNs (Perini
Corp)/(Barclays Bank PLC, London LOC) 3,200,000
----------------------------------------------------
2,500,000 Holden, MA, 4.25% BANs, 10/1/1998 2,507,683
----------------------------------------------------
6,500,000 Massachusetts Bay Transit Authority, (Series C),
3.70% CP (Westdeutsche Landesbank Girozentrale LOC),
Mandatory Tender 11/17/1997 6,500,000
----------------------------------------------------
</TABLE>
Massachusetts Municipal Cash Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
<C> <S> <C>
Amount Value
(A) SHORT-TERM MUNICIPALS--CONTINUED
MASSACHUSETTS--CONTINUED
$5,500,000 Massachusetts Bay Transit Authority, (Series C),
3.75% CP (Westdeutsche Landesbank Girozentrale LOC),
Mandatory Tender 1/20/1998 $ 5,500,000
----------------------------------------------------
8,100,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham
& Women's Hospital)/(Sanwa Bank Ltd, Osaka LOC) 8,100,000
----------------------------------------------------
2,000,000 Massachusetts HEFA, (Series A) Weekly VRDNs
(Endicott College)/(BankBoston, N.A. LOC) 2,000,000
----------------------------------------------------
3,225,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For
Little Wanderers)/(BankBoston, N.A. LOC) 3,225,000
----------------------------------------------------
2,300,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark
University)/(Sanwa Bank Ltd, Osaka LOC) 2,300,000
----------------------------------------------------
2,247,000 Massachusetts HEFA, (Series E) Weekly VRDNs
(Williams College, MA) 2,247,000
----------------------------------------------------
8,615,000 Massachusetts HEFA, (Series F) Weekly VRDNs
(Children's Hospital of Boston) 8,615,000
----------------------------------------------------
6,000,000 Massachusetts HEFA, 3.70% CP (Harvard University),
Mandatory Tender 11/17/1997 6,000,000
----------------------------------------------------
6,000,000 Massachusetts HEFA, 3.70% CP (Harvard University),
Mandatory Tender 11/20/1997 6,000,000
----------------------------------------------------
500,000 Massachusetts IFA Weekly VRDNs (Berkshire, MA
School)/(National Westminster Bank, PLC, London LOC) 500,000
----------------------------------------------------
1,300,000 Massachusetts IFA Weekly VRDNs (Groton
School)/(National Westminster Bank, PLC, London LOC) 1,300,000
----------------------------------------------------
5,340,000 Massachusetts IFA Weekly VRDNs (Kendall Square
Entity)/(State Street Bank and Trust Co. LOC) 5,340,000
----------------------------------------------------
1,910,000 Massachusetts IFA, (1995 Series A) Weekly VRDNs
(Bradford College Issue)/(BankBoston, N.A. LOC) 1,910,000
----------------------------------------------------
</TABLE>
Massachusetts Municipal Cash Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
<C> <S> <C>
Amount Value
(A) SHORT-TERM MUNICIPALS--CONTINUED
MASSACHUSETTS--CONTINUED
$ 300,000 Massachusetts IFA, (Series 1992) Weekly VRDNs
(Holyoke Water Power Co.)/(Canadian Imperial Bank of
Commerce, Toronto LOC) $ 300,000
-----------------------------------------------------
3,300,000 Massachusetts IFA, (Series 1992A) Weekly VRDNs (Ogden
Haverhill)/ (Union Bank of Switzerland, Zurich LOC) 3,300,000
-----------------------------------------------------
4,000,000 Massachusetts IFA, (Series 1992B), 3.70% CP (New
England Power Co.), Mandatory Tender 11/18/1997 4,000,000
-----------------------------------------------------
4,000,000 Massachusetts IFA, (Series 1992B), 3.80% CP (New
England Power Co.), Mandatory Tender 1/20/1998 4,000,000
-----------------------------------------------------
6,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs
(Goddard House)/(Fleet Bank of New York LOC) 6,000,000
-----------------------------------------------------
5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs
(Whitehead Institute for Biomedical Research) 5,800,000
-----------------------------------------------------
7,100,000 Massachusetts IFA, (Series 1996) Weekly VRDNs
(Newbury College)/(BankBoston, N.A. LOC) 7,100,000
-----------------------------------------------------
2,500,000 Massachusetts IFA, (Series 1997) Weekly VRDNs
(Massachusetts Society for the Prevention of Cruelty
to Animals)/(Fleet National Bank, Providence, R.I.
LOC) 2,500,000
-----------------------------------------------------
1,425,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock
YMCA)/(Bank of Nova Scotia, Toronto LOC) 1,425,000
-----------------------------------------------------
5,500,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston
North Hampton School)/(National Westminster Bank,
PLC, London LOC) 5,500,000
-----------------------------------------------------
5,955,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly
VRDNs (Emerson College Issue)/(BankBoston, N.A. LOC) 5,955,000
-----------------------------------------------------
1,080,000 Massachusetts IFA, Revenue Bonds (Series 1995C)
Weekly VRDNs (Edgewood Retirement Community
Project)/(Dresdner Bank Ag,
Frankfurt LOC) 1,080,000
-----------------------------------------------------
</TABLE>
Massachusetts Municipal Cash Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
<C> <S> <C>
Amount Value
(A) SHORT-TERM MUNICIPALS--CONTINUED
MASSACHUSETTS--CONTINUED
$5,800,000 Massachusetts Municipal Wholesale Electric Company, Power
Supply System Revenue Bonds (1994 Series C) Weekly VRDNs
(Canadian Imperial Bank of Commerce, Toronto LOC) $ 5,800,000
--------------------------------------------------------------
5,000,000 Massachusetts Turnpike Authority, PT-135 Weekly VRDNs (MBIA
INS)/ (Banco Santander LIQ) 5,000,000
--------------------------------------------------------------
2,000,000 Massachusetts Water Resources Authority, (Series 1994), 3.70%
CP (Morgan Guaranty Trust Co., New York LOC), Mandatory Tender
11/21/1997 2,000,000
--------------------------------------------------------------
1,665,400 Millbury, MA, 4.00% BANs, 11/14/1997 1,665,543
--------------------------------------------------------------
3,494,797 Milton, MA, 3.73% BANs, 12/16/1997 3,494,918
--------------------------------------------------------------
1,076,000 Nahant, MA, 4.20% BANs, 8/26/1998 1,077,694
--------------------------------------------------------------
5,000,000 North Andover, MA, 4.00% BANs, 1/22/1998 5,003,244
--------------------------------------------------------------
2,600,000 Paxton, MA, 4.25% BANs, 6/19/1998 2,605,567
--------------------------------------------------------------
2,000,000 Rutland, MA, 4.05% BANs, 6/26/1998 2,001,862
--------------------------------------------------------------
1,100,000 Rutland, MA, 4.10% BANs, 2/13/1998 1,100,905
--------------------------------------------------------------
2,250,000 Seekonk, MA, 4.25% BANs, 8/7/1998 2,254,300
--------------------------------------------------------------
2,500,000 Southborough, MA, 4.00% BANs, 2/6/1998 2,501,919
--------------------------------------------------------------
7,300,000 Springfield, MA , 4.30% BANs (Fleet National Bank, Providence,
R.I. LOC), 11/7/1997 7,300,585
--------------------------------------------------------------
2,000,000 Springfield, MA , 4.40% BANs (Fleet National Bank, Providence,
R.I. LOC), 6/26/1998 2,005,612
--------------------------------------------------------------
1,000,000 Watertown, MA, 4.25% BANs, 5/13/1998 1,001,225
--------------------------------------------------------------
2,500,000 (b) Weymouth, MA, 4.25% BANs, 11/5/1998 2,505,525
-------------------------------------------------------------- ------------
Total 206,552,997
-------------------------------------------------------------- ------------
</TABLE>
Massachusetts Municipal Cash Trust
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
<C> <S> <C>
Amount Value
(A) SHORT-TERM MUNICIPALS--CONTINUED
<CAPTION>
PUERTO RICO--4.7%
<C> <S> <C>
$8,000,000 Puerto Rico Government Development Bank, 3.70% CP,
Mandatory Tender 12/11/1997 $ 8,000,000
---------------------------------------------------
2,200,000 Puerto Rico Industrial, Tourist, Education, Medical
& Environmental Control Finance Authority, (Series
1994A), 3.85% CP (Inter American University of
Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory
Tender 12/12/1997 2,200,000
--------------------------------------------------- ------------
Total 10,200,000
--------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $216,752,997
--------------------------------------------------- ------------
</TABLE>
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Ratings Group, MIG-1, or MIG-2 by Moody's
Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc.
are all considered rated in one of the two highest short-term rating
categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
98.08% 1.92%
</TABLE>
(b) Represents a delayed delivery security.
(c) Also represents cost for federal tax purposes.
Massachusetts Municipal Cash Trust
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($215,706,639) at October 31, 1997.
The following acronym(s) are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance
Corporation
BANs--Bond Anticipation Notes
CP--Commercial Paper
HEFA--Health and Education Facilities
Authority
IDA--Industrial Development Authority
IFA--Industrial Finance Authority
INS--Insured
LIQ--Liquidity Agreement
LOC--Letter of Credit
MBIA--Municipal Bond Investors
Assurance
PLC--Public Limited Company
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at
amortized cost and value $216,752,997
- ---------------------------------------------
Cash 130,100
- ---------------------------------------------
Income receivable 1,648,313
- ---------------------------------------------
Receivable for shares sold 11,016
- --------------------------------------------- ------------
Total assets 218,542,426
- ---------------------------------------------
LIABILITIES:
Payable for investments purchased $2,505,525
- ---------------------------------
Payable for shares redeemed 21,042
- ---------------------------------
Income distribution payable 268,383
- ---------------------------------
Accrued expenses 40,837
- --------------------------------- ----------
Total liabilities 2,835,787
- --------------------------------------------- ------------
Net Assets for 215,706,639 shares
outstanding $215,706,639
- --------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$141,869,354 / 141,869,354 shares
outstanding $1.00
- --------------------------------------------- ------------
BOSTON 1784 FUNDS SHARES:
$73,837,285 / 73,837,285 shares outstanding $1.00
- --------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Statement of Operations
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $7,245,117
- --------------------------------------------------------------------
EXPENSES:
Investment advisory fee $1,006,548
- --------------------------------------------------------
Administrative personnel and services fee 158,069
- --------------------------------------------------------
Custodian fees 18,809
- --------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 71,716
- --------------------------------------------------------
Directors'/Trustees' fees 2,753
- --------------------------------------------------------
Auditing fees 17,514
- --------------------------------------------------------
Legal fees 7,293
- --------------------------------------------------------
Portfolio accounting fees 61,712
- --------------------------------------------------------
Shareholder services fee--Institutional Service Shares 366,596
- --------------------------------------------------------
Shareholder services fee--Boston 1784 Funds Shares 137,333
- --------------------------------------------------------
Share registration costs 23,384
- --------------------------------------------------------
Printing and postage 36,595
- --------------------------------------------------------
Insurance premiums 4,026
- --------------------------------------------------------
Miscellaneous 5,471
- -------------------------------------------------------- ----------
Total expenses 1,917,819
- ---------------------------------------------
Waivers--
- ---------------------------------------------
Waiver of investment advisory fee $(294,305)
- ---------------------------------------------
Waiver of shareholder services fee--
Institutional Service Shares (366,596)
- ---------------------------------------------
Waiver of shareholder services fee--Boston
1784 Funds Shares (137,333)
- --------------------------------------------- ----------
Total waivers (798,234)
- -------------------------------------------------------- ----------
Net expenses 1,119,585
- -------------------------------------------------------------------- ----------
Net investment income $6,125,532
- -------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations--
- -------------------------------------------
Net investment income $ 6,125,532 $ 5,167,035
- ------------------------------------------- ------------- -------------
Distributions to Shareholders
- -------------------------------------------
Distributions from net investment income
- -------------------------------------------
Institutional Service Shares (4,462,883) (3,622,277)
- -------------------------------------------
Boston 1784 Funds Shares (1,662,649) (1,544,758)
- ------------------------------------------- ------------- -------------
Change in net assets resulting from
distributions to shareholders (6,125,532) (5,167,035)
- ------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- -------------------------------------------
Proceeds from sale of shares 682,162,039 533,103,977
- -------------------------------------------
Net asset value of shares issued to
shareholders in payment of distributions
declared 3,135,034 2,757,964
- -------------------------------------------
Cost of shares redeemed (643,996,755) (507,663,326)
- ------------------------------------------- ------------- -------------
Change in net assets resulting from share
transactions 41,300,318 28,198,615
- ------------------------------------------- ------------- -------------
Change in net assets 41,300,318 28,198,615
- -------------------------------------------
NET ASSETS:
Beginning of period 174,406,321 146,207,706
- ------------------------------------------- ------------- -------------
End of period $ 215,706,639 $ 174,406,321
- ------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Massachusetts Municipal Cash Trust
Notes to Financial Statements
- -------------------------------------------------------------------------------
OCTOBER 31, 1997
(1) Organization
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Massachusetts Municipal Cash Trust
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Service Shares and Boston 1784 Funds Shares
(formerly, 1784 Funds Shares and prior to that, BayFunds Shares). The investment
objective of the Fund is to provide current income exempt from federal regular
income tax and Massachusetts state income tax consistent with stability of
principal.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund's use of the amortized cost method to value its portfolio securities is
in accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premiums and discounts, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the exdividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Massachusetts Municipal Cash Trust
- --------------------------------------------------------------------------------
OTHER
Investment transactions are accounted for on the trade date.
(3) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $215,706,639.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Shares sold 619,964,162 489,456,450
Shares issued to shareholders in payment of
distributions declared 1,473,299 1,214,590
Shares redeemed (599,306,953) (470,559,983)
------------ ------------
Net change resulting from Institutional Service
Share transactions 22,130,508 20,111,057
------------ ------------
BOSTON 1784 FUNDS SHARES
Shares sold 62,197,877 43,647,527
Shares issued to shareholders in payment of
distributions declared 1,661,735 1,543,374
Shares redeemed (44,689,802) (37,103,343)
------------ ------------
Net change resulting from Boston 1784 Funds Share
transactions 19,169,810 8,087,558
------------ ------------
Net change resulting from share transactions 41,300,318 28,198,615
------------ ------------
</TABLE>
(4) Investment Advisory Fee and Other Transactions with Affiliates
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Institutional Service Shares for the period. Under the terms of a
Shareholder Services Agreement with BankBoston, N.A., the Fund will pay
Massachusetts Municipal Cash Trust
- --------------------------------------------------------------------------------
BankBoston, N.A., up to 0.25% of average daily net assets of Boston 1784 Funds
Shares for the period. These fees are used to finance certain services for
shareholders and to maintain shareholder accounts. FSS and BankBoston, N.A. may
voluntarily choose to waive any portion of their fees. FSS and BankBoston, N.A.
can modify or terminate these voluntary waivers at any time at their sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $303,211,550 and $300,210,000,
respectively.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
(5) Concentration of Credit Risk
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 48.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.3% of total investments.
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of,
FEDERATED MUNICIPAL TRUST
(Massachusetts Municipal Cash Trust):
We have audited the accompanying statement of assets and liabilities of Massa-
chusetts Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1997 and the related statement of operations for
the year then ended and the statement of changes in net assets and the financial
highlights (see pages 2 and 23 of the prospectus) for the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1997, by correspondence with
the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Mas-
sachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, and the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the periods presented, in conformity with generally accepted accounting
principles.
Pittsburgh, Pennsylvania
December 2, 1997
Addresses
- --------------------------------------------------------------------------------
Massachusetts Municipal Cash Trust
Boston 1784 Funds Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor Shareholder Servicing Agent
Federated Securities Corp. BankBoston, N.A.
Federated Investors Tower 100 Federal Street
1001 Liberty Avenue Boston, Massachusetts 02110
Pittsburgh, Pennsylvania 15222-3779
Custodian
Investment Adviser State Street Bank and Trust Company
Federated Management P.O. Box 1119
Federated Investors Tower Boston, Massachusetts 02266
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Independent Public Accountants
Transfer Agent and Dividend Arthur Andersen LLP
Disbursing Agent 2100 One PPG Place
Federated Shareholder Services Company Pittsburgh, Pennsylvania 15222
P.O. Box 8600
Boston, Massachusetts 02266-8600
Sub-Transfer Agent
Boston Financial Data Services, Inc.
Two Heritage Drive
North Quincy, Massachusetts 02171
MASSACHUSETTS MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
BOSTON 1784 FUNDS SHARES
(FORMERLY, 1784 FUNDS SHARES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus for
Boston 1784 Funds Shares of Massachusetts Municipal Cash Trust (the "Fund"), a
portfolio of Federated Municipal Trust (the "Trust") dated December 31, 1997.
This Statement is not a prospectus. You may request a copy of a prospectus or a
paper copy of this Statement, if you have received it electronically, free of
charge by calling 1-800-BKB-1784.
Massachusetts Municipal Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229832
0032603B (5/97)
Table of Contents
- --------------------------------------------------------------------------------
Investment Policies 1
- ----------------------------------------------------
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment
Companies 2
Investment Limitations 2
- ----------------------------------------------------
Regulatory Compliance 4
Massachusetts Investment Risks 4
- ----------------------------------------------------
Federated Municipal Trust Management 5
- ----------------------------------------------------
Share Ownership 8
Trustees Compensation 9
Trustee Liability 9
Investment Advisory Services 9
- ----------------------------------------------------
Adviser to the Fund 9
Advisory Fees 10
Brokerage Transactions 10
- ----------------------------------------------------
Other Services 10
- ----------------------------------------------------
Fund Administration 10
Custodian 10
Transfer Agent and Dividend Disbursing Agent 10
Sub-Transfer Agent 10
Independent Public Accountants 10
Shareholder Servicing Agent 11
- ----------------------------------------------------
Exchanging Securities for Shares 11
Determining Net Asset Value 11
- ----------------------------------------------------
Redemption in Kind 11
Massachusetts Partnership Law 12
- ----------------------------------------------------
The Fund's Tax Status 12
Massachusetts State Income Tax 12
Performance Information 12
- ----------------------------------------------------
Yield 12
Effective Yield 13
Total Return 13
Performance Comparisons 13
Economic and Market Information 13
About Federated Investors 13
- ----------------------------------------------------
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 14
Appendix 15
- ----------------------------------------------------
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
Effective May 27, 1997, the name of the class of shares of the Fund has changed
from "1784 Funds Shares" to "Boston 1784 Funds Shares."
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security, the issuer of any demand feature applicable to the security, or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1 or SP-2 by Standard & Poor's Ratings Group ("S&P"), or MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1 and F-2 by Fitch
Investor Services, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSR's in one of their two
highest categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date; marked to market daily and
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. The Fund or its custodian will take possession of the
securities subject to repurchase agreements and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy, pursuant to guidelines established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for the
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings
in excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued Massachusetts Municipal Securities or
temporary investments or enter into repurchase agreements, in accordance
with its investment objective, policies, and limitations or Declaration of
Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or real estate limited
partnerships, although it may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25%
or more of the value of its total assets would be invested in any one
industry, or in industrial development bonds or other securities the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
DIVERSIFICATION OF INVESTMENTS
With regard to at least 50% of its total assets, no more than 5% of its
total assets are to be invested in the securities of a single issuer, and
no more than 25% of its total assets are to be invested in the securities
of a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including states,
territories, possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalitites, or similar
entities will be considered a separate issuer if its assets and revenues
are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
non-governmental issuer are considered to be issued solely by that issuer.
If, in the case of an industrial development bond or government issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the guarantor,
as well as the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not purchase or sell puts, calls, straddles, spreads, or any
combination of them.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present
intent to do so during the coming fiscal year.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such limitation.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSR's, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
MASSACHUSETTS INVESTMENT RISKS
- --------------------------------------------------------------------------------
The Fund invests in obligations of Massachusetts issuers which results in the
Fund's performance being subject to risks associated with the overall economic
conditions present within Massachusetts (the "Commonwealth"). The following
information is a brief summary of the recent prevailing economic conditions and
a general summary of the Commonwealth's financial status. This information is
based on official statements relating to securities that have been offered by
Massachusetts issuers and from other sources believed to be reliable but should
not be relied upon as a complete description of all relevant information.
The Commonwealth has a diverse economy with manufacturing, education, health
care, computers and financial services all being significant contributors.
Massachusetts is generally considered the leader in research and development
within the biotechnology, software and robotics industries as well as having
many highly prestigious universities. In addition to a highly skilled and
educated workforce, the Commonwealth has one of the higher average per capita
incomes in this country.
Beginning in the late 1980's, economic growth in the New England region and
Massachusetts, in particular, slowed and showed pronounced deterioration in the
construction, real estate, financial and manufacturing sectors. Between 1988 and
1992, there were extensive job losses that resulted in a 10% reduction in the
work force. Also, over the same period, property values in the region
experienced a similar decline. More recently, the Massachusetts economy has
experienced a slight recovery, however, at a slower pace than the nation and
there are signs that this recovery may be slowing. In addition, after years of
above average property value growth, property values have decreased an estimated
6% over the same period.
The two major revenue sources available to cities and towns in Massachusetts are
local property taxes and local aid from the Commonwealth. Property taxes are
subject to limitations imposed by a state-wide initiative approved by the voters
in November, 1980 (commonly known as Proposition 2-1/2), which limits the
property taxes that may be levied by any city or town in any fiscal year to the
lesser of (i) 2.5% of the full valuation of the real estate and personal
property therein or (ii) 2.5% over the previous year's levy limit plus any
growth in the tax base from new construction. In recent years the decrease in
property values due to the recession and the limitations of tax levy growth
imposed by Proposition 2-1/2 have resulted in budget constraints for many cities
and towns.
The overall financial condition of the Commonwealth can also be illustrated by
the changes of its debt ratings. During the period in which the Commonwealth has
experienced its financial difficulties beginning in 1988, its general obligation
long-term debt ratings as determined by Moody's and S & P's decreased from Aa
and AA+ to Baa and BBB respectively. Since then the Commonwealth has had its
debt ratings raised by the two rating agencies to A1 and AA- by Moody's and S&P,
respectively, reflecting improved fiscal performance.
The Fund's concentration in securities issued by the Commonwealth and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
Commonwealth or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political, and demographic
conditions within the Commonwealth; and the underlying fiscal condition of the
Commonwealth and its municipalities.
FEDERATED MUNICIPAL TRUST MANAGEMENT
- --------------------------------------------------------------------------------
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
- --------------------------------------------------------------------------------
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is the
father of J.Christopher Donahue, Executive Vice President of the Company.
- --------------------------------------------------------------------------------
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
- --------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee
of the Funds.
- --------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center N Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
- --------------------------------------------------------------------------------
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation; 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; Director or Trustee of the Funds.
- --------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
- --------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr.Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee,Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
- --------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
Share Ownership
Officers and Trustees as a group own less than 1% of the Fund's outstanding
shares.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Boston 1784 Funds Shares of Massachusetts Municipal Cash
Trust: BankBoston, N.A., Boston, Massachusetts, owned approximately 85,745,033
shares (100%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of Massachusetts Municipal Cash
Trust: Bob & Co., Boston, Massachusetts, owned approximately 18,674,807 shares
(11.74%) and State Street Bank and Trust Company, North Quincy, Massachusetts,
owned approximately 50,666,742 shares (31.84%).
<TABLE>
<CAPTION>
TRUSTEES COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $ -0- $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,443 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $ -0- $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended October 31,
1997, 1996, and 1995, the Adviser earned $1,006,548, $856,487, and $686,918,
respectively, of which $294,305, $297,835, and $276,299, respectively, were
voluntarily waived because of undertakings to limit the Fund's expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Board of Trustees. The adviser may select brokers
and dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Trust and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
year ended October 31, 1997, 1996, and 1995, the Trust paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
- --------------------------------------------------------------------------------
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $158,069, $155,108,
and $155,000, respectively.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
SUB-TRANSFER AGENT
Boston Financial Data Services, Inc., Quincy, Massachusetts, is the sub-transfer
agent for the Boston 1784 Funds Shares of the Fund. The Institutional Service
Shares class has no sub-transfer agent.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
SHAREHOLDER SERVICING AGENT
- --------------------------------------------------------------------------------
Under a Shareholder Servicing Plan, the Fund may pay a fee to BankBoston, N.A.,
as shareholder servicing agent, for services provided which are necessary for
the maintenance of shareholder accounts. These activities and services may
include, but are not limited to: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balance; answering routine client inquiries;
and assisting clients in changing dividend options, account designations, and
addresses. For the fiscal year ended October 31, 1997, the Fund earned
shareholder service fees in the amount of $137,333 on behalf of the Boston 1784
Funds Shares, none of which was paid to financial institutions.
EXCHANGING SECURITIES FOR SHARES
The Fund may accept securities in exchange for Shares. The Fund will allow such
exchanges only upon the prior approval of the Fund and a determination by the
Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value. The Fund acquires the
exchanged securities for investment and not for resale. The market value of any
securities exchanged in an initial investment plus any cash, must be at least
$25,000.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share of the Fund will
be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than.50% between the two values. The Trustees will take any
steps they consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining net
asset value.
REDEMPTION IN KIND
- --------------------------------------------------------------------------------
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
- --------------------------------------------------------------------------------
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for obligations of the Trust. To protect shareholders, the
Trust has filed legal documents with Massachusetts that expressly disclaim the
liability of shareholders for acts or obligations of the Trust. These documents
require notice of this disclaimer to be given in each agreement, obligation, or
instrument that the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
- --------------------------------------------------------------------------------
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
MASSACHUSETTS STATE INCOME TAX
Individual shareholders of the Fund who are subject to Massachusetts income
taxation will not be required to pay Massachusetts income tax on that portion of
their dividends which are attributable to: interest earned on Massachusetts
tax-free municipal obligations; gain from the sale of certain of such
obligations; and interest earned on obligations of United States territories or
possessions, to the extent interest on such obligations is exempt from taxation
by the state pursuant to federal law. All remaining dividends will be subject to
Massachusetts income tax.
If a shareholder of the Fund is a Massachusetts business corporation or any
foreign business corporation which exercises its charter, qualifies to do
business, actually does business or owns or uses any part of its capital, plant
or other property in Massachusetts, then it will be subject to Massachusetts
excise taxation either as a tangible property corporation or as an intangible
property corporation. If the corporate shareholder is a tangible property
corporation, it will be taxed upon its net income allocated to Massachusetts and
the value of certain tangible property. If it is an intangible property
corporation, it will be taxed upon its net income and net worth allocated to
Massachusetts. Net income is gross income less allowable deductions for federal
income tax purposes, subject to specified modifications.
Dividends received from the Fund are includable in gross income and generally
may not be deducted by a corporate shareholder in computing its net income. The
corporation's shares in the Fund are not includable in the computation of the
tangible property base of a tangible property corporation, but are includable in
the computation of the net worth base of an intangible property corporation.
Shares of Massachusetts Municipal Cash Trust will be exempt from local property
taxes in Massachusetts.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The Fund calculates its yield based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
The yield for the seven-day period ended October 31, 1997 for the Boston 1784
Funds Shares of the Fund was 3.05%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
The effective yield for the seven-day period ended October 31, 1997 for the
Boston 1784 Funds Shares of the Fund was 3.09%.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year period ended October 31, 1997, and for the period from March 8,
1993 (date of initial public investment) to October 31, 1997, the average annual
total returns were 3.07% and 2.71%, respectively, for the Boston 1784 Funds
Shares of the Fund.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
. Lipper Analytical Services, Inc. ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income dividends
and capital gains distributions, if any.
. 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 moneyfunds.
. Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
From time to time as it deems appropriate, the Fund may advertise the
performance of its shares using charts, graphs and description, compared to
federally insured bank products, including certificates of deposit and time
deposits, and to money market funds using the Lipper Analytical Services money
market instruments average. Unlike federally insured bank products, the shares
of the Fund are not insured.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Fund portfolio mangers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
- --------------------------------------------------------------------------------
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across
approximately 50 money market funds, including 18 government, 11 prime and 21
municipal with assets approximating $28.0 billion, $12.8 billion and $9.5
billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by 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, Federated Securities Corp.
*Source: Investment Company Institute
APPENDIX
- --------------------------------------------------------------------------------
Standard and Poor's Ratings Group Short-term Municipal Obligation Ratings
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Variable Rate Demand Notes (VRDNs) and Tender Option Bonds (TOBs) Ratings
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-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 rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
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 Services. Inc.,
Short-term Debt Rating Definitions
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues
rated F-1+.
F-2 Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not
as great as for issues assigned F-1+ and F-1 ratings.
MICHIGAN MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Michigan Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term Michigan municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of Michigan, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income tax imposed by the State
of Michigan consistent with stability of principal and liquidity. In addition,
the Fund intends to qualify as an investment substantially exempt from the
Michigan intangibles tax.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Michigan Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Confirmations and Account Statements 8
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Service Shares 11
Financial Statements 12
Report of Independent Public Accountants 22
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
Institutional Shares
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
<TABLE>
<CAPTION>
Annual Operating Expenses
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.09%
12b-1 Fee None
Total Other Expenses. 0.31%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.40%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.06% absent the voluntary
waivers of a portion of the management fee and the voluntary waiver of the
shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 4
3 Years $13
5 Years $22
10 Years $51
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.43% 2.19%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.40% 0.37%*
Net investment income 3.39% 3.40%*
Expense waiver/reimbursement(c) 0.66% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $13,370 $11,614
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 2, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for financial institutions
acting in an agency or fiduciary capacity as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term
Michigan municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Michigan taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $25,000 over a 90-day
period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of Michigan
consistent with stability of principal and liquidity. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus. In addition, the Fund
intends to qualify as an investment substantially exempt from the Michigan
Intangibles Personal Property Tax ("intangibles tax").
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
Michigan municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. As a matter of investment
policy, which cannot be changed without shareholder approval, at least 80% of
the Fund's annual interest income will be exempt from federal regular income tax
and Michigan state income and intangibles tax. (Federal regular income tax does
not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Michigan and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Michigan personal
income tax ("Michigan Municipal Securities"). Examples of Michigan Municipal
Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Michigan Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Michigan Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Michigan
Municipal Securities is subject to the federal alternative minimum tax.
MICHIGAN MUNICIPAL SECURITIES
Michigan Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Michigan Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Michigan Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Michigan Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Michigan Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Michigan
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Michigan Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Michigan Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Michigan Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Michigan Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational, and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Michigan
Municipal Cash Trust--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Michigan Municipal Cash Trust--Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, First Mar & Company, Marquette, Michigan, owned 75.18%
of the Institutional Shares of the Fund, and, therefore, may for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Michigan. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
MICHIGAN TAXES
Under existing Michigan laws, distributions made by the Fund will not be subject
to Michigan personal income taxes to the extent that such distributions qualify
as exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest from obligations of Michigan or any of its political subdivisions, or
(ii) income from obligations of the United States government which are exempted
from state income taxation by a law of the United States.
The portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions, or (ii)
obligations of the United States which are exempt from taxation by a law of the
United States, and dividends paid by the Fund representing interest payments on
securities, will be exempt from Michigan intangibles tax. 1995 Public Act 5
repeals the intangibles tax effective January 1, 1998.
Distributions by the Fund are not subject to the Michigan Single Business Tax to
the extent that such distributions are derived from interest on obligations of
Michigan or its political subdivisions, or obligations of the United States
government that are exempt from state taxation by a law of the United States.
Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Fund are exempt
from federal regular income taxes, such dividends also will be exempt from
Michigan municipal income taxes.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
financial institutions acting in an agency or fiduciary capacity and are subject
to a minimum initial investment of $10,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan, but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.27% 3.26% 1.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.50% 0.32%*
Net investment income 3.22% 3.21% 3.67%*
Expense waiver/reimbursement(c) 0.51% 0.76% 1.63%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $147,105 $92,275 $30,133
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 20, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
MICHIGAN MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.3%
MICHIGAN--93.9%
$ 4,200,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue $ 4,200,000
Bonds (Series 1995) Weekly VRDNs (Suburban Tool,
Inc.)/(Huntington National Bank, Columbus, OH LOC)
209,000 Battle Creek, MI Economic Development Corporation, Limited 209,000
Obligation Economic Development Revenue Refunding Bonds
(Series 1992) Weekly VRDNs (Michigan Carton & Paperboard
Company)/(American National Bank, Chicago LOC)
1,455,000 Bedford Township, MI Economic Development Corp., EDRB (Series 1,455,000
1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank, N.A. LOC)
1,500,000 Benzie County, MI Central Schools, 4.00% TANs, 4/1/1998 1,501,210
1,335,000 Berrien County, MI Economic Development Corp., Economic 1,335,000
Development Refunding Revenue Bonds (Series 1992), 3.75% TOBs
(Arlington Metals Corp.)/(American National Bank, Chicago
LOC), Mandatory Tender 11/1/1997
3,000,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate 3,000,000
Tender Securities (Series 1988B), 3.80% TOBs (Sisters of
Charity Health Care System)/(MBIA INS)/(Morgan Guaranty Trust
Co., New York LIQ), Optional Tender 11/1/1997
1,000,000 Clarkston Community Schools, MI, (1997 School Building and 1,007,691
Site Bonds), 5.50% Bonds (MBIA INS), 5/1/1998
4,495,000 Clarkston Community Schools, MI, PA-175 Weekly VRDNs (MBIA 4,495,000
INS)/(Merrill Lynch Capital Services, Inc. LIQ)
4,990,000 Davison, MI Community School District, State Aid Notes, 4.00% 4,993,963
RANs, 5/20/1998
750,000 Dearborn, MI Economic Development Corp., (Series 1990) Weekly 750,000
VRDNs (Exhibit Productions, Inc. Project)/(First of America
Bank - Illinois LOC)
4,500,000 Garden City, MI School District, State Aid Notes, 4.70% RANs 4,512,526
(NBD Bank, Michigan LOC), 4/1/1998
1,000,000 Jackson County, MI Hospital Finance Authority, Series A, 3.85% 1,000,000
Bonds (W.A. Foote Memorial Hospital, MI)/(AMBAC INS), 6/1/1998
2,100,000 Kent Hospital Finance Authority, MI, (Series 1991A) Weekly 2,100,000
VRDNs (Butterworth Hospital)/ (Rabobank Nederland, Utrecht
LOC)
1,425,000 Macomb County, MI Community College District, Community 1,431,855
College Bonds, (Series 1997), 4.90% Bonds, 5/1/1998
3,400,000 Michigan Higher Education Student Loan Authority, (Series 3,400,000
XII-D) Weekly VRDNs (AMBAC INS)/(Kredietbank N.V., Brussels
LIQ)
1,400,000 Michigan Higher Education Student Loan Authority, Refunding 1,400,000
Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC
INS)/(Kredietbank N.V., Brussels LIQ)
3,100,000 Michigan Job Development Authority, Limited Obligation Revenue 3,100,000
Bonds Weekly VRDNs (Andersons Project)/(Credit Lyonnais, Paris
LOC)
3,000,000 Michigan Municipal Bond Authority, (Series 1997C), 4.50% RANs, 3,015,223
9/18/1998
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MICHIGAN--CONTINUED
$ 5,000,000 Michigan State Building Authority, (Series 1), 3.75% CP $ 5,000,000
(Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory
Tender 3/2/1998
2,800,000 Michigan State Hospital Finance Authority, (Series A) Weekly 2,800,000
VRDNs (First of America Bank - Michigan LOC)
3,240,000 Michigan State Housing Development Authority, (Series 1990A) 3,240,000
Weekly VRDNs (FSA INS)/ (CDC Municipal Products, Inc. LIQ)
3,900,000 Michigan State Housing Development Authority, (Series 1991) 3,900,000
Weekly VRDNs (Forest Hills Apartments)/(National Australia
Bank, Ltd., Melbourne LOC)
3,695,000 Michigan State Housing Development Authority, MERLOTs (Series 3,810,838
G) Weekly VRDNs (MBIA INS)/(Corestates Bank N.A.,
Philadelphia, PA LIQ)
2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank 2,000,000
of Tokyo-Mitsubishi Ltd. LOC)
4,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex 4,000,000
Controls Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA Gas, 5,620,000
Inc.)/(Svenska Handelsbanken, Stockholm LOC)
900,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood 900,000
Industries, Inc. Project)/(NBD Bank, Michigan LOC)
2,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation 2,500,000
Revenue and Revenue Refunding Bonds (Series 1996) Weekly VRDNs
(C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC)
4,200,000 Michigan Strategic Fund, Limited Obligation PCR Bonds (Series 4,200,000
1993) Weekly VRDNs (Allied-Signal, Inc.)
925,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 925,000
(Series 1995) Weekly VRDNs (Rowe Thomas Company
Project)/(Comerica Bank, Detroit, MI LOC)
4,420,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 4,420,000
(Series 1995) Weekly VRDNs (Bear Lake Associates Project)/(Old
Kent Bank & Trust Co., Grand Rapids LOC)
885,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 885,000
(Series 1995) Weekly VRDNs (Hercules Drawn Steel Corporation
Project)/(KeyBank, N.A. LOC)
3,875,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 3,875,000
(Series 1995) Weekly VRDNs (J.R. Automation Technologies
Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC)
965,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 965,000
(Series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank &
Trust Co., Grand Rapids LOC)
8,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 8,500,000
(Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/(Bank
of America Illinois LOC)
4,710,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 4,710,000
(Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc.
Project)/(Comerica Bank, Detroit, MI LOC)
900,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 900,000
(Series 1996) Weekly VRDNs (ACI Properties, LLC
Project)/(Comerica Bank, Detroit, MI LOC)
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MICHIGAN--CONTINUED
$ 945,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds $ 945,000
(Series 1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank,
Detroit, MI LOC)
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 1,000,000
(Series 1996) Weekly VRDNs (Echo Properties, LLC
Project)/(Comerica Bank, Detroit, MI LOC)
2,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 2,500,000
(Series 1996) Weekly VRDNs (G & T Real Estate Investments Co.,
LLC)/(NBD Bank, Michigan LOC)
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 1,000,000
(Series 1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/(Comerica
Bank, Detroit, MI LOC)
4,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 4,000,000
(Series 1997) Weekly VRDNs (Enprotech Mechanical Services,
Inc.)/(Michigan National Bank, Farmington Hills LOC)
1,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 1,500,000
(Series 1997A) Weekly VRDNs (EPI Printers, Inc.)/(Comerica
Bank, Detroit, MI LOC)
5,880,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 5,880,000
Weekly VRDNs (Hess Industries, Inc.)/(Norwest Bank Minnesota,
Minneapolis LOC)
1,750,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds, 1,750,000
Series 1995 Weekly VRDNs (Welch Properties Project)/(Old Kent
Bank & Trust Co., Grand Rapids LOC)
2,125,000 Michigan Strategic Fund, Variable Rate Demand Limited 2,125,000
Obligation Revenue Bonds (Series 1996) Weekly VRDNs (R.H.
Wyner Associates, Inc.)/(State Street Bank and Trust Co. LOC)
2,000,000 Michigan Strategic Fund, Variable Rate Demand Limited 2,000,000
Obligation Revenue Bonds (Series 1997B) Weekly VRDNs (NSF
International)/(First of America Bank - Michigan LOC)
3,500,000 Monroe County, MI Pollution Control Authority, (Series 3,500,000
CDC-1997M) Weekly VRDNs (Detroit Edison Co.)/(AMBAC INS)/(CDC
Municipal Products, Inc. LIQ)
3,000,000 Oakland County, MI EDC, Limited Obligation Revenue Bonds 3,000,000
(Series 1997) Weekly VRDNs (Stone Soap Company,
Inc.)/(Michigan National Bank, Farmington Hills LOC)
1,000,000 Rochester, MI Community School District, 3.85% Bonds (MBIA 1,000,000
INS), 5/1/1998
4,975,000 Southgate Community School District, MI, State Aid Notes, 4,985,389
4.125% RANs, 6/25/1998
1,000,000 Utica, MI Community Schools, 4.10% Bonds (FGIC INS), 5/1/1998 1,001,320
4,365,000 Wayne County, MI Downriver Sewage Disposal System, (1994 4,365,000
Series B), 3.70% CP (Wayne County, MI)/(Comerica Bank,
Detroit, MI LOC), Mandatory Tender 12/17/1997
4,100,000 Wayne County, MI, Airport Revenue Refunding Bonds (Series 4,100,000
1996A) Weekly VRDNs (Detroit Metropolitan Wayne County
Airport)/(Bayerische Landesbank Girozentrale LOC)
TOTAL 150,709,015
PUERTO RICO--5.4%
3,500,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 3,500,000
Tender 12/11/1997
1,075,000 Puerto Rico Industrial, Medical & Environmental PCA, Pollution 1,075,128
Control Facilities Financing Authority (Series 1983A), 3.75%
TOBs (Schering Plough Corp.)/(Morgan Guaranty Trust Co., New
York LOC), Optional Tender 12/1/1997
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--CONTINUED
$ 2,000,000 Puerto Rico Industrial, Tourist, Education, Medical & $ 2,000,000
Environmental Control Finance Authority, (Series 1994A), 3.85%
CP (Inter American University of Puerto Rico)/(Banque Paribas,
Paris LOC), Mandatory Tender 12/12/1997
2,065,000 Puerto Rico Municipal Finance Agency, Revenue Bonds, Series B, 2,073,401
4.50% Bonds, 7/1/1998
TOTAL 8,648,529
TOTAL INVESTMENTS (AT AMORTIZED $ 159,357,544
COST)(B)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 52.1% of the
portfolio as calculated upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+,
F-1 and F-2 by Fitch Investors Service, Inc. are considered rated in one of the
two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows application regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($160,475,625) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation CP --Commercial Paper EDC
- --Economic Development Commission EDRB --Economic Development Revenue Bonds FGIC
- --Financial Guaranty Insurance Company FSA --Financial Security Assurance INS
- --Insured LIQ --Liquidity Agreement LLC --Limited Liability Company LOC --Letter
of Credit MBIA --Municipal Bond Investors Assurance PCA --Pollution Control
Authority PCR --Pollution Control Revenue RANs --Revenue Anticipation Notes TANs
- --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand
Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MICHIGAN MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 159,357,544
Cash 214,026
Income receivable 1,042,704
Deferred organizational costs 14,980
Deferred expenses 4,107
Total assets 160,633,361
LIABILITIES:
Payable for shares redeemed $ 3,897
Income distribution payable 91,963
Accrued expenses 61,876
Total liabilities 157,736
Net Assets for 160,475,625 shares outstanding $ 160,475,625
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$147,105,347 / 147,105,347 shares outstanding $1.00
INSTITUTIONAL SHARES:
$13,370,278 / 13,370,278 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MICHIGAN MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,945,470
EXPENSES:
Investment advisory fee $ 655,534
Administrative personnel and services fee 155,000
Custodian fees 8,737
Transfer and dividend disbursing agent fees and expenses 84,677
Directors'/Trustees' fees 1,391
Auditing fees 11,144
Legal fees 7,648
Portfolio accounting fees 56,176
Shareholder services fee--Institutional Service Shares 294,391
Shareholder services fee--Institutional Shares 33,389
Share registration costs 47,073
Printing and postage 23,628
Insurance premiums 3,609
Miscellaneous 8,236
Total expenses 1,390,633
Waivers--
Waiver of investment advisory fee $ (542,531)
Waiver of shareholder services fee--Institutional (115,014)
Service Shares
Waiver of shareholder services fee--Institutional Shares (33,389)
Total waivers (690,934)
Net expenses 699,699
Net investment income $ 4,245,771
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 4,245,771 $ 2,173,858
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Service Shares (3,793,687) (1,958,685)
Institutional Shares (452,084) (215,173)
Change in net assets resulting from distributions to (4,245,771) (2,173,858)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 843,340,942 318,706,288
Net asset value of shares issued to shareholders in payment of 2,986,927 1,590,062
distributions declared
Cost of shares redeemed (789,741,373) (246,540,494)
Change in net assets resulting from share transactions 56,586,496 73,755,856
Change in net assets 56,586,496 73,755,856
NET ASSETS:
Beginning of period 103,889,129 30,133,273
End of period $ 160,475,625 $ 103,889,129
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MICHIGAN MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Michigan Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Service Shares and Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of Michigan
consistent with the stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $160,475,625.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
<S> <C> <C>
Shares sold 780,908,072 286,548,847
Shares issued to shareholders in payment of distributions declared 2,956,463 1,585,481
Shares redeemed (729,034,645) (225,992,144)
Net change resulting from Institutional Service Shares transactions 54,829,890 62,142,184
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
<S> <C> <C>
Shares sold 62,432,870 32,157,441
Shares issued to shareholders in payment of distributions declared 30,464 4,581
Shares redeemed (60,706,728) (20,548,350)
Net change resulting from Institutional Shares transactions 1,756,606 11,613,672
Net change resulting from share transactions 56,586,496 73,755,856
</TABLE>
(a) For the period from March 2, 1996 (date of initial public investment) to
October 31, 1996.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $18,618 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $3,194 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $394,104,000 and $399,209,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 81.7% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.6% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MICHIGAN
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Michigan
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2 and 11 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
NOTES
NOTES
[Graphic]
Michigan Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
MICHIGAN MUNICIPAL
CASH TRUST
INSTITUTIONAL 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
[Graphic]
Federated Investors
1-800-245-7400
www.federatedinvestors.com
Cusip 314229667
G01212-04-IS (12/97)
[Graphic]
MICHIGAN MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Michigan Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Michigan municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Michigan, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income tax imposed by the State
of Michigan consistent with stability of principal and liquidity. In addition,
the Fund intends to qualify as an investment substantially exempt from the
Michigan intangibles tax.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1 Financial Highlights--Institutional Service Shares 2
General Information 3 Investment Information 3 Investment Objective 3
Investment Policies 3 Michigan Municipal Securities 5 Investment Risks 5
Investment Limitations 5 Fund Information 6 Management of the Fund 6
Distribution of Institutional Service Shares 6 Administration of the Fund 7 Net
Asset Value 7 How to Purchase Shares 7 Purchasing Shares Through a Financial
Institution 7 Purchasing Shares by Wire 7 Purchasing Shares by Check 8 Special
Purchase Features 8 How to Redeem Shares 8 Redeeming Shares Through a Financial
Institution 8 Redeeming Shares by Telephone 8 Redeeming Shares by Mail 8
Special Redemption Features 9 Account and Share Information 9 Dividends 9
Capital Gains 9 Confirmations and Account Statements 9 Accounts with Low
Balances 9 Voting Rights 9 Tax Information 10 Federal Income Tax 10 State and
Local Taxes 10 Other Classes of Shares 10 Performance Information 11 Financial
Highlights--Institutional Shares 12 Financial Statements 13 Report of
Independent Public Accountants 23
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.09%
12b-1 Fee None
Total Other Expenses 0.46%
Shareholder Services Fee (after waiver)(2) 0.15%
Total Fund Operating Expenses(3) 0.55%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.06% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 6
3 Years $18
5 Years $31
10 Years $69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.27% 3.26% 1.35%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.50% 0.32%*
Net investment income 3.22% 3.21% 3.67%*
Expense waiver/reimbursement(c) 0.51% 0.76% 1.63%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $147,105 $92,275 $30,133
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 20, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for financial
institutions acting in an agency or fiduciary capacity as a convenient means of
accumulating an interest in a professionally managed portfolio investing in
short-term Michigan municipal securities. The Fund may not be a suitable
investment for retirement plans or for non-Michigan taxpayers because it invests
in municipal securities of that state. A minimum initial investment of $10,000
over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of Michigan
consistent with stability of principal and liquidity. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the various requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus. In addition, the Fund
intends to qualify as an investment substantially exempt from the Michigan
Intangibles Personal Property Tax ("intangibles tax").
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
Michigan municipal securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. As a matter of investment
policy, which cannot be changed without shareholder approval, at least 80% of
the Fund's annual interest income will be exempt from federal regular income tax
and Michigan state income and intangibles tax. (Federal regular income tax does
not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Michigan and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and Michigan personal
income tax ("Michigan Municipal Securities"). Examples of Michigan Municipal
Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Michigan Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Michigan Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Michigan
Municipal Securities is subject to the federal alternative minimum tax.
MICHIGAN MUNICIPAL SECURITIES
Michigan Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Michigan Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Michigan Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Michigan Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Michigan Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Michigan
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Michigan Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Michigan Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Michigan Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Michigan Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational, and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Fund, with a minimum initial investment of $10,000 or more
over a 90-day period and additional investments of as little as $500. Financial
institutions may impose different minimum investment requirements on their
customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Michigan
Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to Michigan Municipal Cash Trust--Institutional Service Shares. Please include
an account number on the check. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights,
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, First Mar & Company, Marquette, Michigan, owned 75.18%
of the Institutional Shares of the Fund, and, therefore, may for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Michigan. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
MICHIGAN TAXES
Under existing Michigan laws, distributions made by the Fund will not be subject
to Michigan personal income taxes to the extent that such distributions qualify
as exempt-interest dividends under the Internal Revenue Code, and represent (i)
interest from obligations of Michigan or any of its political subdivisions, or
(ii) income from obligations of the United States government which are exempted
from state income taxation by a law of the United States.
The portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions, or (ii)
obligations of the United States which are exempt from taxation by a law of the
United States, and dividends paid by the Fund representing interest payments on
securities, will be exempt from Michigan intangibles tax. 1995 Public Act 5
repeals the intangibles tax effective January 1, 1998.
Distributions 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.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions acting in an agency or fiduciary capacity and are subject to a
minimum initial investment of $25,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan, but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 23.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.43% 2.19%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.40% 0.37%*
Net investment income 3.39% 3.40%*
Expense waiver/reimbursement(c) 0.66% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $13,370 $11,614
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 2, 1996 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
MICHIGAN MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.3%
MICHIGAN--93.9%
$ 4,200,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue $ 4,200,000
Bonds (Series 1995) Weekly VRDNs (Suburban Tool,
Inc.)/(Huntington National Bank, Columbus, OH LOC)
209,000 Battle Creek, MI Economic Development Corporation, Limited 209,000
Obligation Economic Development Revenue Refunding Bonds
(Series 1992) Weekly VRDNs (Michigan Carton & Paperboard
Company)/(American National Bank, Chicago LOC)
1,455,000 Bedford Township, MI Economic Development Corp., EDRB (Series 1,455,000
1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank, N.A. LOC)
1,500,000 Benzie County, MI Central Schools, 4.00% TANs, 4/1/1998 1,501,210
1,335,000 Berrien County, MI Economic Development Corp., Economic 1,335,000
Development Refunding Revenue Bonds (Series 1992), 3.75% TOBs
(Arlington Metals Corp.)/(American National Bank, Chicago
LOC), Mandatory Tender 11/1/1997
3,000,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate 3,000,000
Tender Securities (Series 1988B), 3.80% TOBs (Sisters of
Charity Health Care System)/(MBIA INS)/(Morgan Guaranty Trust
Co., New York LIQ), Optional Tender 11/1/1997
1,000,000 Clarkston Community Schools, MI, (1997 School Building and 1,007,691
Site Bonds), 5.50% Bonds (MBIA INS), 5/1/1998
4,495,000 Clarkston Community Schools, MI, PA-175 Weekly VRDNs (MBIA 4,495,000
INS)/(Merrill Lynch Capital Services, Inc. LIQ)
4,990,000 Davison, MI Community School District, State Aid Notes, 4.00% 4,993,963
RANs, 5/20/1998
750,000 Dearborn, MI Economic Development Corp., (Series 1990) Weekly 750,000
VRDNs (Exhibit Productions, Inc. Project)/(First of America
Bank - Illinois LOC)
4,500,000 Garden City, MI School District, State Aid Notes, 4.70% RANs 4,512,526
(NBD Bank, Michigan LOC), 4/1/1998
1,000,000 Jackson County, MI Hospital Finance Authority, Series A, 3.85% 1,000,000
Bonds (W.A. Foote Memorial Hospital, MI)/(AMBAC INS), 6/1/1998
2,100,000 Kent Hospital Finance Authority, MI, (Series 1991A) Weekly 2,100,000
VRDNs (Butterworth Hospital)/ (Rabobank Nederland, Utrecht
LOC)
1,425,000 Macomb County, MI Community College District, Community 1,431,855
College Bonds, (Series 1997), 4.90% Bonds, 5/1/1998
3,400,000 Michigan Higher Education Student Loan Authority, (Series 3,400,000
XII-D) Weekly VRDNs (AMBAC INS)/(Kredietbank N.V., Brussels
LIQ)
1,400,000 Michigan Higher Education Student Loan Authority, Refunding 1,400,000
Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC
INS)/(Kredietbank N.V., Brussels LIQ)
3,100,000 Michigan Job Development Authority, Limited Obligation Revenue 3,100,000
Bonds Weekly VRDNs (Andersons Project)/(Credit Lyonnais, Paris
LOC)
3,000,000 Michigan Municipal Bond Authority, (Series 1997C), 4.50% RANs, 3,015,223
9/18/1998
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MICHIGAN--CONTINUED
$ 5,000,000 Michigan State Building Authority, (Series 1), 3.75% CP $ 5,000,000
(Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory
Tender 3/2/1998
2,800,000 Michigan State Hospital Finance Authority, (Series A) Weekly 2,800,000
VRDNs (First of America Bank - Michigan LOC)
3,240,000 Michigan State Housing Development Authority, (Series 1990A) 3,240,000
Weekly VRDNs (FSA INS)/ (CDC Municipal Products, Inc. LIQ)
3,900,000 Michigan State Housing Development Authority, (Series 1991) 3,900,000
Weekly VRDNs (Forest Hills Apartments)/(National Australia
Bank, Ltd., Melbourne LOC)
3,695,000 Michigan State Housing Development Authority, MERLOTs (Series 3,810,838
G) Weekly VRDNs (MBIA INS)/(Corestates Bank N.A.,
Philadelphia, PA LIQ)
2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank 2,000,000
of Tokyo-Mitsubishi Ltd. LOC)
4,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex 4,000,000
Controls Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA Gas, 5,620,000
Inc.)/(Svenska Handelsbanken, Stockholm LOC)
900,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood 900,000
Industries, Inc. Project)/(NBD Bank, Michigan LOC)
2,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation 2,500,000
Revenue and Revenue Refunding Bonds (Series 1996) Weekly VRDNs
(C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC)
4,200,000 Michigan Strategic Fund, Limited Obligation PCR Bonds (Series 4,200,000
1993) Weekly VRDNs (Allied-Signal, Inc.)
925,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 925,000
(Series 1995) Weekly VRDNs (Rowe Thomas Company
Project)/(Comerica Bank, Detroit, MI LOC)
4,420,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 4,420,000
(Series 1995) Weekly VRDNs (Bear Lake Associates Project)/(Old
Kent Bank & Trust Co., Grand Rapids LOC)
885,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 885,000
(Series 1995) Weekly VRDNs (Hercules Drawn Steel Corporation
Project)/(KeyBank, N.A. LOC)
3,875,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 3,875,000
(Series 1995) Weekly VRDNs (J.R. Automation Technologies
Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC)
965,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 965,000
(Series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank &
Trust Co., Grand Rapids LOC)
8,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 8,500,000
(Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/(Bank
of America Illinois LOC)
4,710,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 4,710,000
(Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc.
Project)/(Comerica Bank, Detroit, MI LOC)
900,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 900,000
(Series 1996) Weekly VRDNs (ACI Properties, LLC
Project)/(Comerica Bank, Detroit, MI LOC)
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
MICHIGAN--CONTINUED
$ 945,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds $ 945,000
(Series 1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank,
Detroit, MI LOC)
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 1,000,000
(Series 1996) Weekly VRDNs (Echo Properties, LLC
Project)/(Comerica Bank, Detroit, MI LOC)
2,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 2,500,000
(Series 1996) Weekly VRDNs (G & T Real Estate Investments Co.,
LLC)/(NBD Bank, Michigan LOC)
1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 1,000,000
(Series 1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/(Comerica
Bank, Detroit, MI LOC)
4,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 4,000,000
(Series 1997) Weekly VRDNs (Enprotech Mechanical Services,
Inc.)/(Michigan National Bank, Farmington Hills LOC)
1,500,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 1,500,000
(Series 1997A) Weekly VRDNs (EPI Printers, Inc.)/(Comerica
Bank, Detroit, MI LOC)
5,880,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds 5,880,000
Weekly VRDNs (Hess Industries, Inc.)/(Norwest Bank Minnesota,
Minneapolis LOC)
1,750,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds, 1,750,000
Series 1995 Weekly VRDNs (Welch Properties Project)/(Old Kent
Bank & Trust Co., Grand Rapids LOC)
2,125,000 Michigan Strategic Fund, Variable Rate Demand Limited 2,125,000
Obligation Revenue Bonds (Series 1996) Weekly VRDNs (R.H.
Wyner Associates, Inc.)/(State Street Bank and Trust Co. LOC)
2,000,000 Michigan Strategic Fund, Variable Rate Demand Limited 2,000,000
Obligation Revenue Bonds (Series 1997B) Weekly VRDNs (NSF
International)/(First of America Bank - Michigan LOC)
3,500,000 Monroe County, MI Pollution Control Authority, (Series 3,500,000
CDC-1997M) Weekly VRDNs (Detroit Edison Co.)/(AMBAC INS)/(CDC
Municipal Products, Inc. LIQ)
3,000,000 Oakland County, MI EDC, Limited Obligation Revenue Bonds 3,000,000
(Series 1997) Weekly VRDNs (Stone Soap Company,
Inc.)/(Michigan National Bank, Farmington Hills LOC)
1,000,000 Rochester, MI Community School District, 3.85% Bonds (MBIA 1,000,000
INS), 5/1/1998
4,975,000 Southgate Community School District, MI, State Aid Notes, 4,985,389
4.125% RANs, 6/25/1998
1,000,000 Utica, MI Community Schools, 4.10% Bonds (FGIC INS), 5/1/1998 1,001,320
4,365,000 Wayne County, MI Downriver Sewage Disposal System, (1994 4,365,000
Series B), 3.70% CP (Wayne County, MI)/(Comerica Bank,
Detroit, MI LOC), Mandatory Tender 12/17/1997
4,100,000 Wayne County, MI, Airport Revenue Refunding Bonds (Series 4,100,000
1996A) Weekly VRDNs (Detroit Metropolitan Wayne County
Airport)/(Bayerische Landesbank Girozentrale LOC)
TOTAL 150,709,015
PUERTO RICO--5.4%
3,500,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 3,500,000
Tender 12/11/1997
1,075,000 Puerto Rico Industrial, Medical & Environmental PCA, Pollution 1,075,128
Control Facilities Financing Authority (Series 1983A), 3.75%
TOBs (Schering Plough Corp.)/(Morgan Guaranty Trust Co., New
York LOC), Optional Tender 12/1/1997
</TABLE>
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
PUERTO RICO--CONTINUED
$ 2,000,000 Puerto Rico Industrial, Tourist, Education, Medical & $ 2,000,000
Environmental Control Finance Authority, (Series 1994A), 3.85%
CP (Inter American University of Puerto Rico)/(Banque Paribas,
Paris LOC), Mandatory Tender 12/12/1997
2,065,000 Puerto Rico Municipal Finance Agency, Revenue Bonds, Series B, 2,073,401
4.50% Bonds, 7/1/1998
TOTAL 8,648,529
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 159,357,544
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 52.1% of the
portfolio as calculated upon total portfolio market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+,
F-1 and F-2 by Fitch Investors Service, Inc. are considered rated in one of the
two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows application regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($160,475,625) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation CP --Commercial Paper EDC
- --Economic Development Commission EDRB --Economic Development Revenue Bonds FGIC
- --Financial Guaranty Insurance Company FSA --Financial Security Assurance INS
- --Insured LIQ --Liquidity Agreement LLC --Limited Liability Company LOC --Letter
of Credit MBIA --Municipal Bond Investors Assurance PCA --Pollution Control
Authority PCR --Pollution Control Revenue RANs --Revenue Anticipation Notes TANs
- --Tax Anticipation Notes TOBs --Tender Option Bonds VRDNs --Variable Rate Demand
Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MICHIGAN MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 159,357,544
Cash 214,026
Income receivable 1,042,704
Deferred organizational costs 14,980
Deferred expenses 4,107
Total assets 160,633,361
LIABILITIES:
Payable for shares redeemed $ 3,897
Income distribution payable 91,963
Accrued expenses 61,876
Total liabilities 157,736
Net Assets for 160,475,625 shares outstanding $ 160,475,625
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SERVICE SHARES:
$147,105,347 / 147,105,347 shares outstanding $1.00
INSTITUTIONAL SHARES:
$13,370,278 / 13,370,278 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MICHIGAN MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,945,470
EXPENSES:
Investment advisory fee $ 655,534
Administrative personnel and services fee 155,000
Custodian fees 8,737
Transfer and dividend disbursing agent fees and expenses 84,677
Directors'/Trustees' fees 1,391
Auditing fees 11,144
Legal fees 7,648
Portfolio accounting fees 56,176
Shareholder services fee--Institutional Service Shares 294,391
Shareholder services fee--Institutional Shares 33,389
Share registration costs 47,073
Printing and postage 23,628
Insurance premiums 3,609
Miscellaneous 8,236
Total expenses 1,390,633
Waivers--
Waiver of investment advisory fee $ (542,531)
Waiver of shareholder services fee--Institutional (115,014)
Service Shares
Waiver of shareholder services fee--Institutional Shares (33,389)
Total waivers (690,934)
Net expenses 699,699
Net investment income $ 4,245,771
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MICHIGAN MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 4,245,771 $ 2,173,858
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Service Shares (3,793,687) (1,958,685)
Institutional Shares (452,084) (215,173)
Change in net assets resulting from distributions to (4,245,771) (2,173,858)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 843,340,942 318,706,288
Net asset value of shares issued to shareholders in payment of 2,986,927 1,590,062
distributions declared
Cost of shares redeemed (789,741,373) (246,540,494)
Change in net assets resulting from share transactions 56,586,496 73,755,856
Change in net assets 56,586,496 73,755,856
NET ASSETS:
Beginning of period 103,889,129 30,133,273
End of period $ 160,475,625 $ 103,889,129
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MICHIGAN MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Michigan Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Service Shares and Institutional Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of Michigan
consistent with the stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $160,475,625.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
Shares sold 780,908,072 286,548,847
Shares issued to shareholders in payment of distributions declared 2,956,463 1,585,481
Shares redeemed (729,034,645) (225,992,144)
Net change resulting from Institutional Service Shares transactions 54,829,890 62,142,184
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
<S> <C> <C>
Shares sold 62,432,870 32,157,441
Shares issued to shareholders in payment of distributions declared 30,464 4,581
Shares redeemed (60,706,728) (20,548,350)
Net change resulting from Institutional Shares transactions 1,756,606 11,613,672
Net change resulting from share transactions 56,586,496 73,755,856
</TABLE>
(a) For the period from March 2, 1996 (date of initial public investment) to
October 31, 1996.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $18,618 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $3,194 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $394,104,000 and $399,209,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 81.7% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 9.6% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MICHIGAN
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Michigan
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see pages 2 and 12 of the prospectus) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
NOTES
[Graphic]
Michigan Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
MICHIGAN MUNICIPAL CASH TRUST 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
[Graphic]
Federated Investors
1-800-245-7400
www.federatedinvestors.com
Cusip 314229725
G01212-01 (12/97)
[Graphic]
MICHIGAN MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectuses of
Michigan Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
MICHIGAN MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-245-7400
www.federatedinvestors.com
Cusip 314229667
Cusip 314229725
G01212-02 (12/97)
[Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1
Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2 Credit Enhancement 2 Investing in Securities of Other
Investment Companies 2 MICHIGAN INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3
Selling Short and Buying on Margin 3 Issuing Senior Securities and Borrowing
Money 3 Pledging Assets 3 Lending Cash or Securities 3 Investing in Commodities
3 Investing in Real Estate 3 Underwriting 3 Concentration of Investments 3
Investing in Illiquid Securities 3 Investing for Control 3 Investing in Options
4 Regulatory Compliance 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 4 Share
Ownership 8 Trustee Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY
SERVICES 9 Investment Adviser 9 Advisory Fees 10 BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 10
Transfer Agent 11 Independent Public Accountants 11 SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 11 MASSACHUSETTS PARTNERSHIP
LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective
Yield 12 Tax-Equivalent Yield 12 Tax-Equivalency Table 13 Total Return 13
Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED
INVESTORS 14 Mutual Fund Market 14 Institutional Clients 15 Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed, or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
MICHIGAN INVESTMENT RISKS
Michigan's economy continues to be among the most cyclical of states, remaining
heavily dependent on domestic auto production and durable goods consumption.
While manufacturing comprises 23% of the total jobs in the state, relative to
17% nationally, it comprises a lesser share than in the 1970s when it was 35%.
The automobile industry has reduced its share of employment to 6.9% of total
employment, compared with 10.8% in 1979. In fact, Michigan's economy continues
to shift away from durable goods manufacturing to a more diversified base
reliant on services and trade. This shift to jobs in service and trade
industries has, however, resulted in declines in per capita income relative to
the nation.
On August 19, 1993, the Governor of Michigan signed into law Act 145, Public
Acts of Michigan, 1993 (Act 145), a measure which significantly impacted
financing of primary and secondary school operations and which has resulted in
additional property tax and school reform legislation. Michigan's school finance
reform shifts the responsibility of funding schools away from the local district
and their real property tax bases to the state and an earmarked portion of sales
taxes. Moreover, the state government is also subject to a revenue-raising cap
which is tied to the annual state personal income growth. The margin between
existing revenue and the constitutional cap is greatly narrowed now that the
state absorbs the costs of funding the local schools. Over the long term the cap
may reduce the state's flexibility to deal with adverse financial developments.
Concerning Michigan's fiscal policy, the state has proven that it can maintain a
balanced budget, low debt levels and high reserves. While the state's Rainy Day
Fund was drawn down substantially during fiscal years 1990-92 in order to meet
budget needs of the state during fiscal stress, spending restraint and an
improved economy enabled the state to begin to restore balances in fiscal 1993.
By the end of fiscal 1996, the Budget Stabilization Fund reached an historically
high level of $1.1 billion, with a continuation of this position currently
projected for the year ending September 30, 1997.
While Michigan's economy is in good standing now because of conservative
budgeting practices and the improved economy, the enduring effectiveness of the
state's financial management will continue to be tested by economic cycles.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or hold
portfolio securities permitted by its investment objective, policies, and
limitations or Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited partnership
interests, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in any one
industry, or in industrial development bonds or other securities the interest
upon which is paid from revenues of similar types of projects, except that the
Fund may invest 25% or more of the value of its total assets in cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies, or instrumentalities and repurchase agreements collateralized
by such U.S. government securities.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of Michigan Municipal Cash Trust:
Sunatco Partnership, Hancock, Michigan, owned approximately 1,150,102 shares
(8.29%); First Mar & Co., Marquette, Michigan, owned approximately 10,430,452
shares (75.18%); and Fotru Co., Grand Rapids, Michigan, owned approximately
890,996 shares (6.42%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of Michigan Municipal Cash
Trust: Var & Co., St. Paul, Minnesota, owned approximately 9,714,056 shares
(6.07%); McDonald & Co. Securities Inc., Cincinnati, Ohio, owned approximately
36,107,820 shares (22.56%); and Miller, Canfield, Paddock, and Stone, PLC,
Detroit, Michigan, owned approximately 8,429,719 shares (5.27%).
TRUSTEE COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $4,443 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and President and
Trustee 8 other investment companies in the
Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis,
M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty,
Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund,or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997 and 1996, and for the period from June 20, 1995 (date of initial public
investment) to October 31, 1995, the adviser earned $655,534, $337,325, and
$32,107, respectively, of which $542,531, $337,325, and $32,107, respectively,
were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997 and 1996, and for the period from June 20, 1995
(date of initial public investment) to October 31, 1995, the Fund paid no
brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997 and 1996, and for the period from June 20, 1995 (date of
initial public investment) to October 31, 1995, the Administrators earned
$155,000, $145,082, and $45,548, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that the
Fund will benefit by: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, the Fund earned shareholder service
fees in the amounts of $33,389 and $294,391 on behalf of Institutional Shares
and Institutional Service Shares, respectively, of which $0 and $179,377,
respectively, were paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
invest in securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yields for Institutional
Shares and Institutional Service Shares were 3.45% and 3.29%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yields for
Institutional Shares and Institutional Service Shares were 3.51% and 3.34%,
respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 44.00% tax rate (the maximum combined effective
federal and state rate for individuals) and assuming that the income is 100% tax
exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yields for
Institutional Shares and Institutional Service Shares were 6.16% and 5.88%,
respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MICHIGAN
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
19.40% 32.40% 35.40% 40.40% 44.00%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year period ended October 31, 1997, and for the period from March 2,
1996 (date of initial public investment) through October 31, 1997, the average
annual total returns for Institutional Shares were 3.43% and 3.40%,
respectively.
For the one-year period ended October 31, 1997, and for the period from June 20,
1995 (date of initial public investment) through October 31, 1997, the average
annual total returns were 3.27% and 3.34%, respectively, for Institutional
Service Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime, and 21 municipal with
assets approximating $28.0 billion, $12.8 billion, and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global
portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
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, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
GEORGIA MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
PROSPECTUS
The Shares of Georgia Municipal Cash Trust (the "Fund") offered by this
prospectus represent interests in a portfolio of Federated Municipal Trust (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in short-term Georgia municipal securities, including
securities of states, territories, and possessions of the United States which
are not issued by or on behalf of Georgia, or its political subdivisions and
financing authorities, but which provide current income exempt from federal
regular income tax and the income tax imposed by the State of Georgia consistent
with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information, or make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Georgia Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Fund Information 5
Management of the Fund 5
Distribution of Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Performance Information 10
Financial Statements 11
Report of Independent Public Accountants Inside Back Cover
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.13%
12b-1 Fee None
Total Other Expenses 0.46%
Shareholder Services Fee 0.25%
Total Operating Expenses(2) 0.59%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1998. The total operating
expenses were 0.49% for fiscal year ended October 31, 1997 and would have
been 0.92% absent the voluntary waivers of portions of the management fee
and shareholder services fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Trust will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Fund Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 6
3 Years $19
5 Years $33
10 Years $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.38% 3.37% 0.73%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49% 0.46% 0.25%*
Net investment income 3.33% 3.31% 3.81%*
Expense waiver/reimbursement(c) 0.43% 0.52% 0.75%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $121,858 $122,940 $111,278
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 22, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed for financial institutions acting in an agency
or fiduciary capacity as a convenient means of accumulating an interest in a
professionally managed portfolio investing in short-term Georgia municipal
securities. The Fund may not be a suitable investment for retirement plans or
for non-Georgia taxpayers because it invests in municipal securities of that
state. A minimum initial investment of $10,000 over a 90-day period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the income tax imposed by the State of Georgia consistent
with stability of principal and liquidity. This investment objective cannot be
changed without shareholder approval. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the income taxes imposed by
the State of Georgia. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of Georgia
and its political subdivisions and financing authorities, and obligations of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal regular income tax and the income taxes imposed by
the State of Georgia ("Georgia Municipal Securities"). Examples of Georgia
Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable
or floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause
the securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand notes
as maturing on the later of the date of the next interest rate adjustment or
the date on which the Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Georgia Municipal Securities from financial
institutions such as commercial and investment banks, savings associations,
and insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests, or any other form of
indirect ownership that allows the Fund to treat the income from the
investment as exempt from federal income tax. The Fund invests in these
participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the
underlying Georgia Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation interest in any of the above. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Fund will limit their purchase, together
with other illiquid securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Georgia
Municipal Securities is subject to the federal alternative minimum tax.
GEORGIA MUNICIPAL SECURITIES
Georgia Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Georgia Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Georgia Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Georgia Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Georgia Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Georgia
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Georgia Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Georgia Municipal Securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Georgia Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Georgia Municipal Securities may entail a greater level
of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge assets to secure such borrowings. These investment limitations
cannot be changed without shareholder approval.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting) shares
of Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational, and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$10,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Georgia
Municipal Cash Trust; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Georgia Municipal Cash Trust. Please include an account number on the check.
Orders by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn from the shareholder's checking
account at an Automated Clearing House ("ACH") member and invested in Fund
shares. Shareholders should contact their financial institution or the Fund to
participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name; the account name as registered
with the Fund; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights; except that in
matters affecting only a particular portfolio, only shareholders of that
portfolio are entitled to vote. The Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Georgia. Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
GEORGIA TAXES
Under existing Georgia law, shareholders of the Fund will not be subject to
individual or corporate Georgia income taxes on distributions from the Fund to
the extent that such distributions represent exempt-interest dividends for
federal income tax purposes that are attributable to (1) interest-bearing
obligations issued by or on behalf of the State of Georgia or its political
subdivisions, or (2) interest on obligations of the United States or of any
other issuer whose obligations are exempt from state income taxes under federal
law. Distributions, if any, derived from capital gains or other sources
generally will be taxable for Georgia income tax purposes to shareholders of the
Fund who are subject to the Georgia income tax.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
PORTFOLIO OF INVESTMENTS
GEORGIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.0%
GEORGIA--98.2%
$ 1,600,000 Atlanta, GA, Urban Residential Finance Authority, Multifamily $ 1,600,000
Housing Revenue Bonds (Series 1995) Weekly VRDNs (West End
Housing Development Project)/(First Union National Bank,
Charlotte, NC LOC)
2,250,000 Brunswick and Glynn County, GA Development Authority, 2,250,000
Multi-Mode Variable Rate IDRB's (Series 1996) Weekly VRDNs
(Daewoo Equipment Corp.)/(KeyBank, N.A. LOC)
3,865,000 Brunswick, GA, Housing Authority, (Series S93) Weekly VRDNs 3,865,000
(Island Square Apartments)/ (Columbus Bank and Trust Co., GA
LOC)
5,000,000 Burke County, GA Development Authority, (Series 1997B), 3.80% 5,000,000
Bonds (Oglethorpe Power Corp. Vogtle Project)/(AMBAC INS),
5/28/1998
1,750,000 Carrolton, GA Payroll Development Authority, (Series 1993) 1,750,000
Weekly VRDNs (Sunox, Inc. Project)/(First Union National Bank,
Charlotte, NC LOC)
2,000,000 Chatam County, GA Hospital Authority, (Series A), 4.15% Bonds 2,001,778
(Memorial Medical Center; Savannah, GA)/(AMBAC INS), 1/1/1998
1,615,000 Cherokee County, GA Development Authority, IDRB Weekly VRDNs 1,615,000
(Morrison Products, GA)/ (KeyBank, N.A. LOC)
2,000,000 Cherokee County, GA School System, 4.10% TANs, 12/31/1997 2,000,643
500,000 Clarke County, GA Hospital Authority, 3.90% Bonds (Athens 500,000
Medic Center)/(MBIA INS), 1/1/1998
550,000 Clayton County, GA Housing Authority, Revenue Refunding Bonds 550,000
(Series 1992) Weekly VRDNs (Oxford Townhomes Project)/(Amsouth
Bank N.A., Birmingham LOC)
2,625,000 Cobb County, GA IDA Weekly VRDNs (Atlanta RDC Co.)/(First 2,625,000
Union National Bank, Charlotte, NC LOC)
1,700,000 Cobb County, GA IDA, IDRB (Series 1995) Weekly VRDNs 1,700,000
(Consolidated Engineering Company, Inc. Project)/(Nationsbank,
NA, Charlotte LOC)
2,500,000 Cobb County, GA School District, 5.00% Bonds, 2/1/1998 2,508,545
970,000 Columbia County, GA Development Authority, (Series 1991) 970,000
Weekly VRDNs (Augusta Sportswear, Inc.)/(Wachovia Bank of
Georgia N.A., Atlanta LOC)
385,000 Columbus, GA IDA Industrial & Port Development Commission, 385,000
(Series 1992) Weekly VRDNs (Maine Street Village
Partnership)/(Columbus Bank and Trust Co., GA LOC)
1,035,000 Columbus, GA IDA, (Series 90B) Weekly VRDNs (R. P. Real 1,035,000
Estate, Inc.)/(Columbus Bank and Trust Co., GA LOC)
2,000,000 Conyers-Rockdale-Big Haynes, GA Impoundment Authority,
(Series 2,000,158 1997), 3.75% BANs, 12/31/1997
3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco 3,000,000
L.L.C. Project)/(NBD Bank, Michigan LOC)
6,000,000 Crisp County, GA Development Authority, (Series B), 4.10% TOBs 6,000,000
(Masonite Corporation)/ (International Paper Co. GTD),
Optional Tender 9/1/1998
</TABLE>
GEORGIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
GEORGIA--CONTINUED
$ 1,375,000 De Kalb County, GA Development Authority, (Series 1992) Weekly $ 1,375,000
VRDNs (House of Cheatham, Inc. Project)/(Nationsbank, N.A.,
Charlotte LOC)
600,000 De Kalb County, GA Development Authority, (Series 1993) Weekly 600,000
VRDNs (Pet, Inc.)/(PNC Bank, N.A. LOC)
1,250,000 De Kalb County, GA Development Authority, (Series 1996) Weekly 1,250,000
VRDNs (DeKalb Steel, Inc.)/ (SouthTrust Bank of Georgia,
Atlanta LOC)
4,000,000 De Kalb County, GA Multifamily Housing Authority, Multifamily 4,000,000
Housing Revenue Bonds (Series 1996) Weekly VRDNs (Bryton Hill
Apartments)/(PNC Bank, Kentucky LOC)
3,100,000 Douglas County, GA Development Authority, (Series 1997) Weekly 3,100,000
VRDNs (Austral Insulated Products, Inc.)/(Regions Bank,
Alabama LOC)
1,095,000 Forsythe County, GA School District, (Series 1997), 4.00% 1,095,000
Bonds, 2/1/1998
1,000,000 Forsythe County, GA Development Authority, IDRB (Series 1995) 1,000,000
Weekly VRDNs (American BOA, Inc. Project)/(Dresdner Bank AG,
Frankfurt LOC)
3,300,000 Fulton County, GA IDA Weekly VRDNs (C.K.S. Packaging, 3,300,000
Inc.)/(SouthTrust Bank of Georgia, Atlanta LOC)
300,000 Gainesville, GA Redevelopment Authority, IDRB (Series 1986) 300,000
Weekly VRDNs (Hotel of Gainesville Associates
Project)/(Regions Bank, Alabama LOC)
2,000,000 Georgia Municipal Electric Authority, (Series P), 8.125% Bonds 2,054,101
(United States Treasury PRF), 1/1/1998 (@102)
1,900,000 Georgia Ports Authority, (Series 1996A) Weekly VRDNs 1,900,000
(Colonel's Island Terminal)/(SunTrust Bank, Atlanta LOC)
5,765,000 Georgia State HFA, (Series 1990C), 3.80% TOBs (First
National 5,765,000 Bank of Chicago LIQ), Optional Tender
12/1/1997
5,690,000 Georgia State Municipal Gas Authority, Gas Revenue Bonds 5,690,000
(Series D), 3.80% CP (Wachovia Bank of NC, N.A., Winston-Salem
LOC), Mandatory Tender 2/17/1998
3,300,000 Gwinnett County, GA IDA, (Series 1996) Weekly VRDNs (Sidel, 3,300,000
Inc. Project)/(Nationsbank, N.A,, Charlotte LOC)
2,750,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler 2,750,000
Quality Yarns Corp. Project)/ (Union Bank of Switzerland,
Zurich LOC)
3,180,000 La Grange, GA, Multifamily Housing Authority, Revenue
Bonds, 3,180,000 4.40% TOBs (Lee's Crossing Project Phase
II)/(Columbus Bank and Trust Co., GA LOC), Optional Tender
11/1/1997
3,000,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds, 3,000,000
4.40% TOBs (Lee's Crossing Project Phase I)/(Columbus Bank and
Trust Co., GA LOC), Optional Tender 11/1/1997
4,000,000 Lowndes County Schools, GA, 3.88% TANs, 12/31/1997 4,000,510
820,000 Macon-Bibb County, GA Industrial Authority, IDRB (Series 1990) 820,000
Weekly VRDNs (Diamond Plastics Corp. Project)/(Nationsbank,
N.A., Charlotte LOC)
1,280,000 Macon-Bibb County, GA Urban Development Authority, Refunding 1,280,000
Revenue Bonds (Series 1995) Weekly VRDNs (Macon Hotel
Investors Project)/(NBD Bank, Michigan LOC)
4,470,000 (b)Marietta, GA Housing Authority, Multifamily Housing Revenue 4,470,000
Bonds (Series 1995) Weekly VRDNs (Chalet Apartments
Project)/(General Electric Capital Corp. LOC)
</TABLE>
GEORGIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
GEORGIA--CONTINUED
$ 3,200,000 Rockdale County, GA Development Authority, (Series 1995) $ 3,200,000
Weekly VRDNs (Great Southern Wood Preserving Co.)/(SunTrust
Bank, Central Florida LOC)
600,000 Rockdale County, GA Hospital Authority, Revenue Anticipation 600,000
Certificates (Series 1994) Weekly VRDNs (Rockdale
Hospital)/(SunTrust Bank, Atlanta LOC)
3,490,000 Rome, GA, 4.25% TANs, 12/31/1997 3,491,780
1,000,000 Screven County, GA IDA, (Series 1995) Weekly VRDNs (Sylvania 1,000,000
Yarn Systems, Inc. Project)/ (SunTrust Bank, Atlanta LOC)
710,000 Sumter County, GA School District, 3.90% Bonds, 2/1/1998
710,000 6,000,000 Upper Oconee Basin, GA Water Authority, 4.15% BANs,
3/1/1998 6,000,000
500,000 Walker County, GA School District, (Series 1997), 4.00% Bonds, 500,000
2/1/1998
1,000,000 Wayne County, GA, IDA, Revenue Bonds, (Series 1995) Weekly 1,000,000
VRDNs (Harsco Corp.)/ (Nationsbank, N.A., Charlotte LOC)
4,000,000 Whitfield County, GA Development Authority Weekly VRDNs 4,000,000
(Franklin Industries Inc., Project)/(Nationsbank, N.A.,
Charlotte LOC)
2,115,000 Whitfield County, GA Development Authority, (Series 1996) 2,115,000
Weekly VRDNs (AMC International, Inc. Project)/(SouthTrust
Bank of Alabama, Birmingham LOC)
1,405,000 Winder-Barrow Industrial Building Authority, (Series 1996) 1,405,000
Weekly VRDNs (Windor Builders Supply, Inc. Project)/(National
Bank of Canada, Montreal LOC)
TOTAL 119,607,515
PUERTO RICO--0.8%
1,000,000 (b)ABN AMRO Chicago Corp 1997A LeaseTOPS Trust Weekly VRDNs 1,000,000
(Commonwealth of Puerto Rico Municipal Revenues Collection
Center)/(ABN AMRO Bank N.V., Amsterdam LIQ)/(State Street Bank
and Trust Co. LOC)
TOTAL INVESTMENTS (AT AMORTIZED $ 120,607,515
COST)(C)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 58.4% of
the portfolio as calculated based upon total portfolio market value.
(a) The fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or unrated securities of
comparable quality. An NRSRO's two highest rating categories are determined
without regard for sub-categories and gradations. For example, securities
rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group, MIG-1, or
MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, and F-2 by Fitch
Investors Service, Inc. are all considered rated in one of the two highest
short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and
unrated securities of comparable quality) are identified as Second Tier
securities. The fund follows applicable regulations in determining whether a
security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percent Based on Total Market Value (unaudited)
FIRST TIER SECOND TIER
91.71% 8.29%
(b) Denotes a restricted security which is subject to
restrictions on resale under Federal Securities laws. At October 31, 1997,
these securities amounted to $5,470,000 which represents 4.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($121,858,203) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation BANs --Bond Anticipation
Notes CP --Commercial Paper GTD --Guaranty HFA --Housing Finance Authority IDA
- --Industrial Development Authority IDRB --Industrial Development Revenue Bond
INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit MBIA --Municipal
Bond Investors Assurance PRF --Prerefunded TANs --Tax Anticipation Notes TOBs
- --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
GEORGIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 120,607,515
Cash 333,565
Income receivable 1,070,490
Deferred organizational costs 12,957
Deferred expenses 17,100
Total assets 122,041,627
LIABILITIES:
Income distribution payable $ 145,849
Accrued expenses 37,575
Total liabilities 183,424
Net Assets for 121,858,203 shares outstanding $ 121,858,203
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$121,858,203 / 121,858,203 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
GEORGIA MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 5,855,507
EXPENSES:
Investment advisory fee $ 767,263
Administrative personnel and services fee 125,351
Custodian fees 7,225
Transfer and dividend disbursing agent fees and expenses 24,849
Directors'/Trustees' fees 1,457
Auditing fees 10,719
Legal fees 7,380
Portfolio accounting fees 43,764
Shareholder services fee 383,632
Share registration costs 19,820
Printing and postage 10,157
Insurance premiums 3,144
Taxes 953
Miscellaneous 7,478
Total expenses 1,413,192
Waivers--
Waiver of investment advisory fee $ (569,196)
Waiver of shareholder services fee (92,072)
Total waivers (661,268)
Net expenses 751,924
Net investment income $ 5,103,583
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
GEORGIA MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 5,103,583 $ 3,883,056
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (5,103,583) (3,883,056)
SHARE TRANSACTIONS--
Proceeds from sale of shares 584,493,087 594,865,591
Net asset value of shares issued to shareholders in payment of 2,937,442 2,027,740
distributions declared
Cost of shares redeemed (588,512,359) (585,230,921)
Change in net assets resulting from share transactions (1,081,830) 11,662,410
Change in net assets (1,081,830) 11,662,410
NET ASSETS:
Beginning of period 122,940,033 111,277,623
End of period $ 121,858,203 $ 122,940,033
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
GEORGIA MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Georgia Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income exempt from federal regular income tax
and the income tax imposed by the State of Georgia consistent with stability of
principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
RESTRICTED SECURITIES
Restricted securities are securities that may be resold upon registration under
federal securities laws or in transactions exempt from such registration. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held at October 31, 1997, is
as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Marietta, GA Housing Authority 12/9/1996 - 1/23/1997 4,470,000
ABN AMRO Chicago Corp. 8/27/1997 937,637
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
October 31, 1997, capital paid-in-aggregated $121,858,203.
Transactions in shares were as follows:
<TABLE>
Year Ended October 31,
1997 1996
<S> <C> <C>
Shares sold 584,493,087 594,865,591
Shares issued to shareholders in payment of distributions 2,937,442 2,027,740
declared
Shares redeemed (588,512,359) (585,230,921)
Net change resulting from share transactions (1,081,830) 11,662,410
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services, the Fund will pay FSS up to 0.25% of average daily net assets of the
Fund for the period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily choose to
waive any portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $13,648 were borne initially by Adviser. The Fund has
reimbursed the Adviser for these expenses. These expenses have been deferred and
are being amortized over the five-year period following the Funds effective
date. For the year ended October 31, 1997, the Fund expensed $2,470 of
organizational expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $338,080,000 and $352,755,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 75.0% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 10.3% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (GEORGIA
MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of Georgia
Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a
Massachusetts business trust), including the schedule of portfolio investments,
as of October 31, 1997, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
(see page 2 of the prospectus) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Georgia Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, the results of its operations for the year then
ended and the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
Federated Investors
Georgia Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
GEORGIA MUNICIPAL CASH TRUST
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
Federated Securities Corp., Distributor
1-800-341-7000
www.federatedinvestors.com
Cusip 314229691
G01204-01 (12/97)
[Graphic]
GEORGIA MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Georgia Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
GEORGIA MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
STATEMENT DATED DECEMBER 31, 1997
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229691
G01204-02 (12/97)
[Graphic]
TABLE OF CONTENTS
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Credit Enhancement 2
Investing in Securities of Other Investment Companies 2
Georgia Investment Risks 2
Investment Limitations 2
Selling Short and Buying on Margin 2
Issuing Senior Securities and Borrowing Money 3
Pledging Assets 3
Lending Cash or Securities 3
Investing in Commodities 3
Investing in Real Estate 3
Underwriting 3
Concentration of Investments 3
Investing in Illiquid Securities 3
Investing for Control 3
Investing in Options 3
Regulatory Compliance 4
Federated Municipal Trust Management 4
Share Ownership 7
Trustee Compensation 8
Trustee Liability 8
Investment Advisory Services 8
Investment Adviser 8
Advisory Fees 9
Brokerage Transactions 9
Other Services 9
Fund Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 10
Independent Public Accountants 10
Shareholder Services 10
Determining Net Asset Value 10
Redemption in Kind 10
Massachusetts PartnershipLaw 11
The Fund's Tax Status 11
Performance Information 11
Yield 11
Effective Yield 11
Tax-Equivalent Yield 11
Tax-Equivalency Table 12
Total Return 12
Performance Comparisons 13
Economic and Market Information 13
About Federated Investors 13
Mutual Fund Market 14
Institutional Clients 14
BankMarketing 14
Broker/Dealers and Bank Broker/Dealer Subsidiaries 14
Appendix 15
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics and prospects); the
likelihood that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its operations
(e.g., the potential for an "event of non-appropriation"); and any credit
enhancement or legal recourse provided upon an event of non-appropriation or
other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
GEORGIA INVESTMENT RISKS
S&P's upgrade of Georgia's rating to AAA in July 1997 is a further demonstration
of Georgia's favorable position. S&P joins Moody's and Fitch in granting Georgia
their highest long-term ratings. These ratings reflect the state's positive
economic trends, conservative management, strong financial position, and low
debt burden. Although Georgia was affected by the recession in the early 1990s,
its recovery has been stronger than that of the nation as a whole, with steady
gains in employment and income.
Georgia ranks sixth in the nation in both employment and population growth from
1991 to 1996. Job growth has been centered in business and health services,
reflecting diversification away from traditional agricultural base. Despite a
lull in construction activity following the Olympics in 1996, the state is still
felling the benefits of the games. Job growth in 1996 was 3.7%, well above the
national average of 2%. Unemployment, as of October 1997, was 3.8%, well below
the national average of 4.7%.
The state closed fiscal 1997 with a surplus of nearly half a billion dollars,
part of which will be set aside in anticipation of a reduction in sales tax on
food items. State reserves are fully funded.
Georgia's rapid growth has required large expenditures on infrastructure.
Consequently, debt levels have risen somewhat in recent years. Expenditures on
educational enhancements are being funded largely through lottery proceeds. In
addition, during 1997, many school districts approved a local option sales tax
to fund educational improvements.
The Fund's concentration in securities issued by Georgia and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of Georgia or its
municipalities to meet their obligation will depend on the availability of tax
and other revenues; economic, political and demographic conditions within
Georgia; and the underlying condition of the state and its municipalities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while borrowings in
excess of 5% of value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or hold
portfolio securities permitted by its investment objective, policies, and
limitations, or the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited partnership
interests, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in any one
industry, or in industrial development bonds or other securities the interest
upon which is paid from revenues of similar types of projects, except that the
Fund may invest 25% or more of the value of its total assets in cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies, or instrumentalities and repurchase agreements collateralized
by such U.S. government securities.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days notice.
INVESTING 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 NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center--Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E.Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P.Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of the Georgia Municipal Cash Trust: %); Wachovia Bank
of North Carolina, Winston-Salem, North Carolina, owned approximately 25,258,806
shares (18.52%); Cobatco, Synovus Trust Company, Columbus, Georgia, owned
approximately 16,855,694 shares (12.36%); BHC Securities, Inc., Philadelphia,
Pennsylvania, owned approximately 15,353,748 shares (11.26%); First Union
National Bank, Charlotte, North Carolina, owned approximately 13,305,813 shares
(9.76%); and Gainor Medical MGT, McDonough, Georgia, owned approximately
7,107,472 shares (5.21%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 8 other investment companies in the Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, 1996, and for the period from August 22, 1995, (date of initial public
investment) through October 31, 1995, the adviser earned $767,263, $586,560, and
$87,222, respectively, of which $569,196, $559,762, and $87,222, respectively,
were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended October 31, 1997, 1996, and for the period from August 22, 1995
(date of initial public investment) through October 31, 1995, the Fund paid no
brokerage commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and for the period from August 22, 1995, (date of
initial public investment) through October 31, 1995, the Administrators earned
$125,351, $125,000, and $23,973, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder Services
to cause services to be provided which are necessary for the maintenance of
shareholder accounts and to encourage personal services to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include but are not limited to:
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that the
Fund will benefit by: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, the Fund earned shareholder service
fees in the amount of $383,632 of which $291,560 was paid to financial
institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
derive less than 30% of its gross income from sale of securities held less than
three months; invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
The Fund's yield for the seven-day period ended October 31, 1997, was 3.37%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result. The Fund's effective yield for the
seven-day period ended October 31, 1997, was 3.43%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 45.60% tax rate (the maximum combined effective
federal and state rates for individuals) and assuming that the income is 100%
tax exempt.
The Fund's tax-equivalent yield for the seven-day period ended October 31, 1997,
was 6.31%.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF GEORGIA
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE: 21.000% 34.000% 37.000% 42.000% 45.600%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00% 2.53% 3.03% 3.17% 3.45% 3.68%
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00% 3.80% 4.55% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.56% 6.03% 6.43%
4.00% 5.06% 6.06% 6.35% 6.90% 7.35%
4.50% 5.70% 6.82% 7.14% 7.76% 8.27%
5.00% 6.33% 7.58% 7.94% 8.62% 9.19%
5.50% 6.96% 8.33% 8.73% 9.48% 10.11%
6.00% 7.59% 9.09% 9.52% 10.34% 11.03%
6.50% 8.23% 9.85% 10.32% 11.21% 11.95%
7.00% 8.86% 10.61% 11.11% 12.07% 12.87%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
The Fund's average annual total returns for the one-year period ended October
31, 1997, and for the period from August 22, 1995 (date of initial public
investment) through October 31, 1997, were 3.38% and 3.42%, respectively.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based
on total return, which assumes the reinvestment of all income dividends and
capital gains distributions, if any.
* 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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime, and 21 municipal with
assets approximating $28.0 billion, $12.8 billion, and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, INC.
SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
TENNESSEE MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
The Institutional Shares of Tennessee Municipal Cash Trust (the "Fund") offered
by this prospectus represent interests in a portfolio of Federated Municipal
Trust (the "Trust"), an open-end management investment company (a mutual fund).
The Fund invests primarily in short-term Tennessee municipal securities,
including securities of states, territories, and possessions of the United
States which are not issued by or on behalf of Tennessee, or its political
subdivisions and financing authorities, but which provide current income exempt
from federal regular income tax and the personal income tax imposed by the State
of Tennessee consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights-- Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Tennessee Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Hub and Spoke Registered Trademark Option 6
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 7
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Service Shares 11
Financial Statements 12
Report of Independent Public Accountants Inside Back Cover
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.35%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.35%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.50%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.46% absent the voluntary
waivers of the management fee and the shareholder services fee and the voluntary
reimbursement of certain other operating expenses.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Institutional Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Fund Information." Wire-transferred redemptions
of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $ 4
3 Years $11
5 Years $20
10 Years $44
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.47% 1.59%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.35% 0.10%*
Net investment income 3.40% 3.57%*
Expense waiver/reimbursement(c) 1.11% 1.62%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $23,048 $17,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial public
investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for financial institutions
acting in a fiduciary capacity as a convenient means of accumulating an interest
in a professionally managed portfolio investing in short-term Tennessee
municipal securities. The Fund may not be a suitable investment for retirement
plans or for non-Tennessee taxpayers because it invests in municipal securities
of that state. A minimum initial investment of $25,000 over a 90-day period is
required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Tennessee consistent with stability of principal and liquidity. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by the State of Tennessee. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Tennessee and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and the personal income
taxes imposed by the State of Tennessee ("Tennessee Municipal Securities").
Examples of Tennessee Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Tennessee Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Tennessee Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. As a matter of fundamental investment policy, which cannot be
changed without shareholder approval, the Fund will not invest more than 10% of
its net assets in restricted securities except for certain restricted securities
that meet the criteria for liquidity established by the Trustees. As a matter of
non-fundamental investment policy, the Fund will limit investments in illiquid
securities, including illiquid restricted securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Tennessee
Municipal Securities is subject to the federal alternative minimum tax.
TENNESSEE MUNICIPAL SECURITIES
Tennessee Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Tennessee Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Tennessee Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Tennessee Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Tennessee Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Tennessee
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Tennessee Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Tennessee Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Tennessee Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Tennessee Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
its total assets to secure such borrowings. These investment limitations cannot
be changed without shareholder approval.
HUB AND SPOKE Registered Trademark OPTION
If the Trustees determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its objective by
investing all of its assets in another investment company having the same
investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.
The initial shareholder of the Fund voted to vest authority to use this
investment structure in the sole discretion of the Trustees. No further approval
of shareholders is required. Shareholders will receive at least 30 days notice
prior to any such investment.
In making its determination, the Trustees will consider, among other things, the
benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies. Although it is expected that the Trustees will not
approve an arrangement that is likely to result in higher costs, no assurance is
given that costs will remain the same or be materially reduced if this
investment structure is implemented.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares of the Fund. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional Shares outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Fund. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Tennessee
Municipal Cash Trust--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Tennessee Municipal Cash Trust--Institutional Shares. Please include an
account number on the check. Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received), and shares begin earning dividends the next day.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Proceeds from redemption requests on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights;
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Reep & Co., Pioneer Bank, Chattanooga, Tennessee, owned
37.16% of the voting securities of the Institutional Shares of the Fund, and
Trust Co. of Knoxville, Knoxville, Tennessee, owned 28.33% of the voting
securities of the Institutional Shares of the Fund. Therefore, they may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Tennessee. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
TENNESSEE TAXES
Under existing Tennessee law, distributions made by the Fund will not be subject
to Tennessee personal income taxes to the extent that such distributions qualify
as "exempt-interest dividends" under the Internal Revenue Code, and represent
(i) interest on obligations of the state of Tennessee or its political
subdivisions; or (ii) interest on certain obligations of the United States, or
any agency or instrumentality thereof. To the extent that distributions by the
Fund are derived from distributions on other types of obligations, such
distributions will be subject to Tennessee personal income taxes.
Distributions made by the Fund will be subject to the excise taxes imposed on
corporations.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
financial institutions acting in an agency capacity and are subject to a minimum
initial investment of $10,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Service Shares are distributed with no 12b-1 Plan, but are subject
to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on the inside
back cover.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.21% 1.48%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60% 0.39%*
Net investment income 3.13% 3.26%*
Expense waiver/reimbursement(c) 0.86% 1.33%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,624 $29,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial public
investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
TENNESSEE MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.4%
TENNESSEE--94.1%
$ 980,000 Benton County TN IDB, (Series 1996) Weekly VRDNs (Jones Plastic $ 980,000
and Engineering Corp.)/ (National City Bank, Kentucky LOC)
1,700,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken
Hospital)/(Sumitomo 1,700,000 Bank Ltd., Osaka LOC)
2,550,000 Chattanooga, TN IDB, Revenue Bonds (Series 1997) Weekly VRDNs 2,550,000
(TB Wood's Inc. Project)/ (PNC Bank, N.A. LOC)
1,500,000 Collierville, TN IDB, Industrial Development Revenue Bonds 1,500,000
(Series 1994) Weekly VRDNs (Ardco, Inc.)/(Harris Trust &
Savings Bank, Chicago LOC)
2,000,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs (Tennessee 2,000,000
Bun Company, LLC Project)/ (PNC Bank, Ohio, N.A. LOC)
1,750,000 Greenfield, TN IDB, (Series 1995) Weekly VRDNs (Plastic 1,750,000
Products Co. Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,500,000 Hamilton County, TN IDB, (Series 1987) Weekly VRDNs
(Seaboard 1,500,000 Farms Project)/(SunTrust Bank, Atlanta
LOC)
3,900,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui Ta 3,900,000
Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd. LOC)
2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty 2,900,000
Machine Co. Project)/(First Union National Bank, Charlotte, NC
LOC)
1,800,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995) 1,800,000
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC)
880,000 Jackson, TN, Electric System Revenue Refunding and
Improvement 880,000 Bonds (Series 1997), 3.70% Bonds (MBIA
INS), 2/1/1998
900,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health 900,000
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC)
3,000,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern 3,000,000
Healthcare Systems, Inc.)/ (Bank One, Texas N.A. LOC)
1,000,000 McMinn County, TN IDB, Industrial Development Bonds (Series 1,000,000
1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank,
Michigan LOC)
1,525,000 Memphis, TN, Capital Outlay Notes, 5.00% BANs, 7/1/1998
1,536,791 1,265,000 Metropolitan Government Nashville & Davidson
County, TN HEFA, 1,265,000
(Series 1992) Weekly VRDNs (Belmont University
Project)/(Nationsbank of Tennessee LOC)
1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA, 1,000,000
Revenue Bonds (Series 1985A), 3.65% TOBs (Vanderbilt
University), Optional Tender 1/15/1998
1,500,000 Metropolitan Government Nashville & Davidson County, TN IDB, 1,500,000
(Series 1994) Weekly VRDNs (Shoney's Inn)/(First Union National
Bank, Charlotte, NC LOC)
1,000,000 Metropolitan Government Nashville & Davidson County, TN, 1,000,000
(Series 1997), 3.80% Bonds, 5/15/1998
</TABLE>
TENNESSEE MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
TENNESSEE--CONTINUED
$ 600,000 Metropolitan Nashville Tennessee AA, Airport Improvement $ 600,000
Revenue Bonds Refunding (Series 1995) Weekly VRDNs (FGIC
INS)/(Credit Local de France LIQ)
2,000,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) 2,000,000
Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank,
Atlanta LOC)
2,000,000 Roane, TN IDB, (Series 1982) 3.75% (Fortafil Fibers, Inc. 2,000,000
Project)/(ABN AMRO Bank N.V., Amsterdam LOC), 11/15/1997
1,000,000 Shelby County, TN Health Education & Housing Facilities Board, 1,000,000
Multifamily Housing Revenue Bonds (Series 1988) Weekly VRDNs
(Arbor Lake Project)/(PNC Bank, N.A. LOC)
1,300,000 Sumter County, AL IDA, Capital Outlay Notes (Series
1997-O), 1,302,077 4.25% BANs, 6/30/1998
1,500,000 Tennessee Housing Development Agency, Home Ownership Program 1,500,000
(Issue 1996 5-B), 3.85% TOBs, Mandatory Tender 8/20/1998
1,000,000 Tennessee State, (Series A), 5.50% Bonds, 3/1/1998 1,005,753
1,000,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler 1,000,000
Co.)/(Wachovia Bank of Georgia N.A., Atlanta LOC)
1,800,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper 1,800,000
Container Corporation Project)/ (SunTrust Bank, Nashville LOC)
TOTAL 44,869,621
PUERTO RICO--5.3%
1,500,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 1,500,000
Tender 12/11/1997
1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & 1,000,000
Environmental Control Finance Authority, (Series 1994A), 3.85%
CP (Inter American University of Puerto Rico)/(Banque Paribas,
Paris LOC), Mandatory Tender 12/12/1997
TOTAL 2,500,000
TOTAL INVESTMENTS (AT AMORTIZED $ 47,369,621
COST)(B)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 62.4% of the
portfolio as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1 or MIG-2 by Moody's Investors Service,
Inc., or F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered
rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($47,671,924) at October 31, 1997.
The following acronyms are used throughout this portfolio:
BANs --Bond Anticipation Notes
CP --Commercial Paper
FGIC --Financial Guaranty Insurance Company HEFA --Health and Education
Facilities Authority IDA --Industrial Development Authority IDB --Industrial
Development Bond INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance TOBs --Tender Option Bonds VRDNs
- --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
TENNESSEE MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 47,369,621
Cash 266,899
Income receivable 234,137
Receivable for shares sold 10,176
Deferred organizational costs 21,633
Total assets 47,902,466
LIABILITIES:
Payable for shares redeemed $ 128,301
Income distribution payable 80,064
Accrued expenses 22,177
Total liabilities 230,542
Net Assets for 47,671,924 shares outstanding $ 47,671,924
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$23,047,849 / 23,047,849 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$24,624,075 / 24,624,075 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
TENNESSEE MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,660,434
EXPENSES:
Investment advisory fee $ 221,951
Administrative personnel and services fee 154,970
Custodian fees 4,160
Transfer and dividend disbursing agent fees and expenses 37,757
Directors'/Trustees' fees 1,068
Auditing fees 8,844
Legal fees 5,494
Portfolio accounting fees 53,615
Shareholder services fee--Institutional Shares 45,168
Shareholder services fee--Institutional Service Shares 65,858
Share registration costs 21,959
Printing and postage 21,939
Insurance premiums 2,991
Miscellaneous 5,152
Total expenses 650,926
Waivers and reimbursements--
Waiver of investment advisory fee $ (221,951)
Waiver of shareholder services fee--Institutional Shares (45,168)
Reimbursement of other operating expenses (160,854)
Total waivers and reimbursements (427,973)
Net expenses 222,953
Net investment income $ 1,437,481
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
TENNESSEE MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,437,481 $ 487,901
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (613,693) (226,076)
Institutional Service Shares (823,788) (261,825)
Change in net assets resulting from distributions to (1,437,481) (487,901)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 172,127,656 165,734,867
Net asset value of shares issued to shareholders in payment of 603,094 209,339
distributions declared
Cost of shares redeemed (172,706,532) (118,296,500)
Change in net assets resulting from share transactions 24,218 47,647,706
Change in net assets 24,218 47,647,706
NET ASSETS:
Beginning of period 47,647,706 ---
End of period $ 47,671,924 $ 47,647,706
</TABLE>
* For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
TENNESSEE MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Tennessee Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of Tennessee
consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $47,671,924.
Transactions in shares were as follows:
<TABLE>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
<S> <C> <C>
Shares sold 87,914,045 34,644,791
Shares issued to shareholders in payment of distributions declared 6,745 3,455
Shares redeemed (82,696,744) (16,824,443)
Net change resulting from Institutional Share transactions 5,224,046 17,823,803
</TABLE>
(a) For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996(A)
<S> <C> <C>
Shares sold 84,213,611 131,090,076
Shares issued to shareholders in payment of distributions declared 596,349 205,884
Shares redeemed (90,009,788) (101,472,057)
Net change resulting from Institutional Service Share transactions (5,199,828) 29,823,903
Net change resulting from share transactions 24,218 47,647,706
</TABLE>
(a) For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $104,135,000 and $105,235,000,
respectively.
ORGANIZATIONAL EXPENSES
Organizational expenses of $24,645 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $2,328 of
organizational expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 81% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 13% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(TENNESSEE MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1997 and the related statements of operations for
the year then ended and changes in net assets and the financial highlights (see
pages 2 and 11 of this prospectus) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, and the results of its operations for the year
then ended, and changes in its net assets, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
Tennessee Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
TENNESSEE MUNICIPAL CASH TRUST INSTITUTIONAL 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
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
1-800-245-7400
www.federatedinvestors.com
Cusip 314229642
G01682-01 (12/97)
[Graphic]
TENNESSEE MUNICIPAL CASH TRUST
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Tennessee Municipal Cash Trust (the "Fund")
offered by this prospectus represent interests in a portfolio of Federated
Municipal Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests primarily in short-term Tennessee municipal
securities, including securities of states, territories, and possessions of the
United States which are not issued by or on behalf of Tennessee, or its
political subdivisions and financing authorities, but which provide current
income exempt from federal regular income tax and the personal income taxes
imposed by the State of Tennessee consistent with stability of principal and
liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A
SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN
INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY
DIVERSIFIED MONEY MARKET FUND.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights-- Institutional Service Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Tennessee Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Hub and Spoke Registered Trademark Option 6
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 7
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a Financial Institution 8
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Special Purchase Features 8
How to Redeem Shares 8
Redeeming Shares Through a Financial Institution 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Special Redemption Features 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Confirmations and Account Statements 9
Accounts with Low Balances 10
Voting Rights 10
Tax Information 10
Federal Income Tax 10
State and Local Taxes 10
Other Classes of Shares 11
Performance Information 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Independent Public Accountants 22
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.60%
Shareholder Services Fee 0.25%
Total Operating Expenses(2) 0.60%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.50%.
(2) The total operating expenses would have been 1.46% absent the voluntary
waiver of the management fee and the voluntary reimbursement of certain other
operating expenses.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Institutional Service Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<S> <C>
1 Year $6
3 Years $19
5 Years $33
10 Years $75
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.21% 1.48%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60% 0.39%*
Net investment income 3.13% 3.26%*
Expense waiver/reimbursement(c) 0.86% 1.33%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,624 $29,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial public
investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institu-tional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for financial
institutions acting in an agency capacity as a convenient means of accumulating
an interest in a professionally managed portfolio investing in short-term
Tennessee municipal securities. The Fund may not be a suitable investment for
retirement plans or for non-Tennessee taxpayers because it invests in municipal
securities of that state. A minimum initial investment of $10,000 over a 90-day
period is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income taxes imposed by the State of
Tennessee consistent with stability of principal and liquidity. This investment
objective cannot be changed without shareholder approval. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will be
90 days or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest income
will be exempt from federal regular income tax and the personal income taxes
imposed by the State of Tennessee. (Federal regular income tax does not include
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies may be changed by the Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
Tennessee and its political subdivisions and financing authorities, and
obligations of other states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax and the personal income
taxes imposed by the State of Tennessee ("Tennessee Municipal Securities").
Examples of Tennessee Municipal Securities include, but are not limited to:
* tax and revenue anticipation notes issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
* municipal commercial paper and other short-term notes; * variable rate
demand notes; * municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS
The Fund may purchase interests in Tennessee Municipal Securities from financial
institutions such as commercial and investment banks, savings associations, and
insurance companies. These interests may take the form of participations,
beneficial interests in a trust, partnership interests, or any other form of
indirect ownership that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features that would
not be available through direct ownership of the underlying Tennessee Municipal
Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above. Lease obligations may
be subject to periodic appropriation. Municipal leases are subject to certain
specific risks in the event of default or failure of appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default,
or change in the credit quality of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may have
more than 25% of its total assets invested in securities credit-enhanced by
banks.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities, or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. As a matter of fundamental investment policy, which cannot be
changed without shareholder approval, the Fund will not invest more than 10% of
its net assets in restricted securities except for certain restricted securities
that meet the criteria for liquidity established by the Trustees. As a matter of
non-fundamental investment policy, the Fund will limit investments in illiquid
securities, including illiquid restricted securities, to 10% of its net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market conditions
call for a temporary defensive posture, the Fund may invest in tax-exempt or
taxable securities, all of comparable quality to other securities in which the
Fund invests, such as: obligations issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; instruments issued by a U.S. branch of a
domestic bank or other depository institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment; and
repurchase agreements (arrangements in which the organization selling the Fund a
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed-upon time and price).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention to do so. However, the interest from certain Tennessee
Municipal Securities is subject to the federal alternative minimum tax.
TENNESSEE MUNICIPAL SECURITIES
Tennessee Municipal Securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and to make loans to other public institutions and facilities.
Tennessee Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of Tennessee Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on Tennessee Municipal Securities depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Fund to achieve
its investment objective also depends on the continuing ability of the issuers
of Tennessee Municipal Securities and participation interests, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due. In addition, from time to time, the supply of Tennessee
Municipal Securities acceptable for purchase by the Fund could become limited.
The Fund may invest in Tennessee Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Tennessee Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Tennessee Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. Due to these risk considerations, the
Fund's concentration in Tennessee Municipal Securities may entail a greater
level of risk than other types of money market funds.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 15% of the value of
its total assets to secure such borrowings. These investment limitations cannot
be changed without shareholder approval.
HUB AND SPOKE Registered Trademark OPTION
If the Trustees determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its objective by
investing all of its assets in another investment company having the same
investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.
The initial shareholder of the Fund voted to vest authority to use this
investment structure in the sole discretion of the Trustees. No further approval
of shareholders is required. Shareholders will receive at least 30 days notice
prior to any such investment.
In making its determination, the Trustees will consider, among other things, the
benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies. Although it is expected that the Trustees will not
approve an arrangement that is likely to result in higher costs, no assurance is
given that costs will remain the same or be materially reduced if this
investment structure is implemented.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Fund's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of the
Fund's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust, organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments up to 0.25% of the average daily net asset value of its
shares, computed at an annual rate, to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational, and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service Shares outstanding. The Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m. Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or by
wire or by check directly from the Fund, with a minimum initial investment of
$10,000 or more over a 90-day period. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before shares can be purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Fund
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Tennessee
Municipal Cash Trust -- Institutional Service Shares; Fund Number (this number
can be found on the account statement or by contacting the Fund); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to: Tennessee Municipal Cash Trust -- Institutional Service Shares. Please
include an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Fund shares. Shareholders should contact their financial institution
or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund has
a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail"
should be considered. If at any time the Fund determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Fund shares. Shareholder accounts will continue to receive the
daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of all classes of each portfolio in the Trust have equal voting rights;
except that in matters affecting only a particular portfolio or class, only
shareholders of that portfolio or class are entitled to vote. The Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
As of November 24, 1997, Reep & Co., Pioneer Bank, Chattanooga, Tennessee, owned
37.16% of the voting securities of the Institutional Shares of the Fund, and
Trust Co. of Knoxville, Knoxville, Tennessee, owned 28.33% of the voting
securities of the Institutional Shares of the Fund. Therefore, they may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase, within the limits of its investment policies, all types
of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
Tennessee. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
TENNESSEE TAXES
Under existing Tennessee law, distributions made by the Fund will not be subject
to Tennessee personal income taxes to the extent that such distributions qualify
as "exempt-interest dividends" under the Internal Revenue Code, and represent
(i) interest on obligations of the state of Tennessee or its political
subdivisions; or (ii) interest on certain obligations of the United States, or
any agency or instrumentality thereof. To the extent that distributions by the
Fund are derived from distributions on other types of obligations, such
distributions will be subject to Tennessee personal income taxes.
Distributions made by the Fund will be subject to the excise taxes imposed on
corporations.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to financial
institutions acting in a fiduciary capacity and are subject to a minimum initial
investment of $25,000 over a 90-day period.
Both classes are subject to certain of the same expenses.
Institutional Shares are distributed with no 12b-1 Plan, but are subject to
shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return. The performance figures will be
calculated separately for each class of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the Fund's tax-exempt yield, assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 22.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.47% 1.59%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.35% 0.10%*
Net investment income 3.40% 3.57%*
Expense waiver/reimbursement(c) 1.11% 1.62%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $23,048 $17,824
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 22, 1996 (date of initial public
investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PORTFOLIO OF INVESTMENTS
TENNESSEE MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--99.4%
TENNESSEE--94.1%
$ 980,000 Benton County TN IDB, (Series 1996) Weekly VRDNs (Jones Plastic $ 980,000
and Engineering Corp.)/ (National City Bank, Kentucky LOC)
1,700,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken
Hospital)/(Sumitomo 1,700,000 Bank Ltd., Osaka LOC)
2,550,000 Chattanooga, TN IDB, Revenue Bonds (Series 1997) Weekly VRDNs 2,550,000
(TB Wood's Inc. Project)/ (PNC Bank, N.A. LOC)
1,500,000 Collierville, TN IDB, Industrial Development Revenue Bonds 1,500,000
(Series 1994) Weekly VRDNs (Ardco, Inc.)/(Harris Trust &
Savings Bank, Chicago LOC)
2,000,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs (Tennessee 2,000,000
Bun Company, LLC Project)/ (PNC Bank, Ohio, N.A. LOC)
1,750,000 Greenfield, TN IDB, (Series 1995) Weekly VRDNs (Plastic 1,750,000
Products Co. Project)/(Norwest Bank Minnesota, Minneapolis LOC)
1,500,000 Hamilton County, TN IDB, (Series 1987) Weekly VRDNs
(Seaboard 1,500,000 Farms Project)/(SunTrust Bank, Atlanta
LOC)
3,900,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui Ta 3,900,000
Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd. LOC)
2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty 2,900,000
Machine Co. Project)/(First Union National Bank, Charlotte, NC
LOC)
1,800,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995) 1,800,000
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC)
880,000 Jackson, TN, Electric System Revenue Refunding and Improvement 880,000
Bonds (Series 1997), 3.70% Bonds (MBIA INS), 2/1/1998
900,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health 900,000
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC)
3,000,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern 3,000,000
Healthcare Systems, Inc.)/ (Bank One, Texas N.A. LOC)
1,000,000 McMinn County, TN IDB, Industrial Development Bonds (Series 1,000,000
1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank,
Michigan LOC)
1,525,000 Memphis, TN, Capital Outlay Notes, 5.00% BANs, 7/1/1998 1,536,791
1,265,000 Metropolitan Government Nashville & Davidson County, TN HEFA, 1,265,000
(Series 1992) Weekly VRDNs (Belmont University
Project)/(Nationsbank of Tennessee LOC)
1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA, 1,000,000
Revenue Bonds (Series 1985A), 3.65% TOBs (Vanderbilt
University), Optional Tender 1/15/1998
1,500,000 Metropolitan Government Nashville & Davidson County, TN IDB, 1,500,000
(Series 1994) Weekly VRDNs (Shoney's Inn)/(First Union National
Bank, Charlotte, NC LOC)
1,000,000 Metropolitan Government Nashville & Davidson County, TN, 1,000,000
(Series 1997), 3.80% Bonds, 5/15/1998
</TABLE>
TENNESSEE MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)SHORT-TERM MUNICIPALS--CONTINUED
TENNESSEE--CONTINUED
$ 600,000 Metropolitan Nashville Tennessee AA, Airport Improvement $ 600,000
Revenue Bonds Refunding (Series 1995) Weekly VRDNs (FGIC
INS)/(Credit Local de France LIQ)
2,000,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) 2,000,000
Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank,
Atlanta LOC)
2,000,000 Roane, TN IDB, (Series 1982) 3.75% (Fortafil Fibers, Inc. 2,000,000
Project)/(ABN AMRO Bank N.V., Amsterdam LOC), 11/15/97
1,000,000 Shelby County, TN Health Education & Housing Facilities Board, 1,000,000
Multifamily Housing Revenue Bonds (Series 1988) Weekly VRDNs
(Arbor Lake Project)/(PNC Bank, N.A. LOC)
1,300,000 Sumter County, AL IDA, Capital Outlay Notes (Series
1997-O), 1,302,077 4.25% BANs, 6/30/1998
1,500,000 Tennessee Housing Development Agency, Home Ownership Program 1,500,000
(Issue 1996 5-B), 3.85% TOBs, Mandatory Tender 8/20/1998
1,000,000 Tennessee State, (Series A), 5.50% Bonds, 3/1/1998 1,005,753
1,000,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler 1,000,000
Co.)/(Wachovia Bank of Georgia N.A., Atlanta LOC)
1,800,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper 1,800,000
Container Corporation Project)/ (SunTrust Bank, Nashville LOC)
TOTAL 44,869,621
PUERTO RICO--5.3%
1,500,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory 1,500,000
Tender 12/11/1997
1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & 1,000,000
Environmental Control Finance Authority, (Series 1994A), 3.85%
CP (Inter American University of Puerto Rico)/(Banque Paribas,
Paris LOC), Mandatory Tender 12/12/1997
TOTAL 2,500,000
TOTAL INVESTMENTS (AT AMORTIZED $ 47,369,621
COST)(B)
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 62.4% of the
portfolio as calculated based upon total market value.
(a) The Fund may only invest in securities rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or unrated securities of comparable quality. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2
by Standard & Poor's Ratings Group, MIG-1 or MIG-2 by Moody's Investors Service,
Inc., or F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered
rated in one of the two highest short-term rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
Fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At October 31, 1997, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
100.00% 0.00%
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($47,671,924) at October 31, 1997.
The following acronyms are used throughout this portfolio:
BANs --Bond Anticipation Notes
CP --Commercial Paper
FGIC --Financial Guaranty Insurance Company HEFA --Health and Education
Facilities Authority IDA --Industrial Development Authority IDB --Industrial
Development Bond INS --Insured LIQ --Liquidity Agreement LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance TOBs --Tender Option Bonds VRDNs
- --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
TENNESSEE MUNICIPAL CASH TRUST
OCTOBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 47,369,621
Cash 266,899
Income receivable 234,137
Receivable for shares sold 10,176
Deferred organizational costs 21,633
Total assets 47,902,466
LIABILITIES:
Payable for shares redeemed $ 128,301
Income distribution payable 80,064
Accrued expenses 22,177
Total liabilities 230,542
Net Assets for 47,671,924 shares outstanding $ 47,671,924
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$23,047,849 / 23,047,849 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$24,624,075 / 24,624,075 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
TENNESSEE MUNICIPAL CASH TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,660,434
EXPENSES:
Investment advisory fee $ 221,951
Administrative personnel and services fee 154,970
Custodian fees 4,160
Transfer and dividend disbursing agent fees and expenses 37,757
Directors'/Trustees' fees 1,068
Auditing fees 8,844
Legal fees 5,494
Portfolio accounting fees 53,615
Shareholder services fee--Institutional Shares 45,168
Shareholder services fee--Institutional Service Shares 65,858
Share registration costs 21,959
Printing and postage 21,939
Insurance premiums 2,991
Miscellaneous 5,152
Total expenses 650,926
Waivers and reimbursements--
Waiver of investment advisory fee $ (221,951)
Waiver of shareholder services fee--Institutional Shares (45,168)
Reimbursement of other operating expenses (160,854)
Total waivers and reimbursements (427,973)
Net expenses 222,953
Net investment income $ 1,437,481
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
TENNESSEE MUNICIPAL CASH TRUST
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,437,481 $ 487,901
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (613,693) (226,076)
Institutional Service Shares (823,788) (261,825)
Change in net assets resulting from distributions to (1,437,481) (487,901)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 172,127,656 165,734,867
Net asset value of shares issued to shareholders in payment of 603,094 209,339
distributions declared
Cost of shares redeemed (172,706,532) (118,296,500)
Change in net assets resulting from share transactions 24,218 47,647,706
Change in net assets 24,218 47,647,706
NET ASSETS:
Beginning of period 47,647,706 ---
End of period $ 47,671,924 $ 47,647,706
</TABLE>
* For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
TENNESSEE MUNICIPAL CASH TRUST
OCTOBER 31, 1997
ORGANIZATION
Federated Municipal Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of sixteen portfolios. The financial
statements included herein are only those of Tennessee Municipal Cash Trust (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares: Institutional Shares and Institutional Service Shares.
The investment objective of the Fund is current income exempt from federal
regular income tax and the personal income tax imposed by the State of Tennessee
consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1997, capital paid-in aggregated $47,671,924.
Transactions in shares were as follows:
<TABLE>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SHARES 1997 1996(A)
<S> <C> <C>
Shares sold 87,914,045 34,644,791
Shares issued to shareholders in payment of distributions declared 6,745 3,455
Shares redeemed (82,696,744) (16,824,443)
Net change resulting from Institutional Share transactions 5,224,046 17,823,803
</TABLE>
(a) For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INSTITUTIONAL SERVICE SHARES 1997 1996(A)
<S> <C> <C> <C>
Shares sold 84,213,611 131,090,076
Shares issued to shareholders in payment of distributions declared 596,349 205,884
Shares redeemed (90,009,788) (101,472,057)
Net change resulting from Institutional Service Share transactions (5,199,828) 29,823,903
Net change resulting from share transactions 24,218 47,647,706
</TABLE>
(a) For the period from May 22, 1996 (date of initial public investment) to
October 31, 1996.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended October 31, 1997, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $104,135,000 and $105,235,000,
respectively.
ORGANIZATIONAL EXPENSES
Organizational expenses of $24,645 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended October 31, 1997, the Fund expensed $2,328 of
organizational expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
CONCENTRATION OF CREDIT RISK
Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers of
that state than would be a comparable tax-exempt mutual fund that invests
nationally. In order to reduce the credit risk associated with such factors, at
October 31, 1997, 81% of the securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments insured
by or supported (backed) by a letter of credit from any one institution or
agency did not exceed 13% of total investments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST
(TENNESSEE MUNICIPAL CASH TRUST):
We have audited the accompanying statement of assets and liabilities of
Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust, a Massachusetts business trust), including the schedule of portfolio
investments, as of October 31, 1997 and the related statements of operations for
the year then ended and changes in net assets and the financial highlights (see
pages 2 and 12 of this prospectus) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal
Trust) as of October 31, 1997, and the results of its operations for the year
then ended, and changes in its net assets, and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 2, 1997
[Graphic]
Tennessee Municipal Cash Trust
(A Portfolio of Federated Municipal Trust)
Institutional Service Shares
PROSPECTUS
DECEMBER 31, 1997
A Portfolio of Federated Municipal Trust, an Open-End Management Investment
Company
TENNESSEE MUNICIPAL CASH TRUST
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
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
1-800-245-7400
www.federatedinvestors.com
Cusip 314229634
G01682-02 (12/97)
[Graphic]
TENNESSEE MUNICIPAL CASH TRUST
(A PORTFOLIO OF FEDERATED MUNICIPAL TRUST)
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectuses of
Tennessee Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal
Trust (the "Trust") dated December 31, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this Statement, if you
have received it electronically, free of charge by calling 1-800-341-7400.
TENNESSEE MUNICIPAL CASH TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated December 31, 1997
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314229634
Cusip 314229642
G01682-03(12/97)
[Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1
Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2
Investing in Securities of Other Investment Companies 2 TENNESSEE INVESTMENT
RISKS 2 INVESTMENT LIMITATIONS 3 Selling Short and Buying on Margin 3 Issuing
Senior Securities and Borrowing Money 3 Pledging Assets 3 Lending Cash or
Securities 3 Investing in Commodities 3 Investing in Restricted Securities 3
Investing in Real Estate 3 Underwriting 3 Concentration of Investments 4
Investing in Illiquid Securities 4 Investing for Control 4 Investing in Options
4 Regulatory Compliance 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share
Ownership 8 Trustee Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY
SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11
Transfer Agent 11 Independent Public Accountants 11 DISTRIBUTION PLAN AND
SHAREHOLDER SERVICES 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE
INFORMATION 12 Yield 12 Effective Yield 13 Tax-Equivalent Yield 13
Tax-Equivalent Table 13 Total Return 13 Performance Comparisons 14 Economic and
Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15
Institutional Clients 15 Bank Marketing 15 Broker/Dealers and Bank
Broker/Dealer Subsidiaries 15
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days). The municipal securities subject to
the participation interests are not limited to the Fund's maximum maturity
requirements so long as the participation interests include the right to demand
payment from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease payments by
a governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation for the
lease. Furthermore, a lease may provide that the participants cannot accelerate
lease obligations upon default. The participants would only be able to enforce
lease payments as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated by
the lessee; the potential recovery, if any, from a sale of the leased property
upon termination of the lease; the lessee's general credit strength (e.g., its
debt, administrative, economic, and financial characteristics and prospects);
the likelihood that the lessee will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation"); and any
credit enhancement or legal recourse provided upon an event of non-appropriation
or other termination of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated SP-1+,
SP-1, or SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest-rating categories. See "Regulatory Compliance."
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund in a dollar
amount sufficient to make payment for the securities to be purchased are:
segregated on the Fund's records at the trade date; marked to market daily; and
maintained until the transaction is settled. The Fund does not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually
agreed-upon time and price. To the extent that the seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. The Fund or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not ensure
this result. However, liquid assets of the Fund, in a dollar amount sufficient
to make payment for the securities to be purchased, are: segregated on the
Fund's records at the trade date; marked to market daily; and maintained until
the transaction is settled.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer. However,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed, or otherwise credit
enhanced by the credit enhancer, in which case the securities will be treated as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
TENNESSEE INVESTMENT RISKS
The overall credit quality of Tennessee reflects its diversified and growing
economy, historically balanced financial operations, and conservative debt
management. Manufacturing has been and continues to be a key sector. However,
the composition of the sector is changing as employment in the traditional
mainstays--textiles and apparel--has declined while employment in transportation
equipment and wood products has increased.
Tennessee's economy outpaced the nation's between 1992 and 1996. During this
period, total employment in Tennessee increased at an average annual rate of
3.1%, compared to the national average annual rate of 2.4%. Unemployment in
Tennessee dropped from 6.4% to 4.8%. Per capita income in Tennessee has
increased faster than the U.S. average since 1991. Since 1996, growth has lagged
behind the national averages.
Economic growth between 1992 and 1996 allowed total revenues to grow faster than
total expenditures. However, as the economic growth has moderated, the State has
curtailed spending in order to balance financial operations and maintain
acceptable financial reserves.
Tennessee's debt, relative to its population and income, compares very favorably
to national averages. The State is an infrequent borrower. Almost 70% of
tax-supported debt is scheduled to be retired within ten years. The amount of
tax-supported debt the state can incur is subject to limits based on receipts
from designated taxes.
Tennessee's general obligation debt is rated AAA by Fitch and Moody's and AA+ by
Standard & Poor's.
The Fund's concentration in securities issued by the State and its political
subdivisions provide a greater level of risk than a fund which is diversified
across a number of states and municipal entities. The ability of the state or
its municipalities to meet their obligations will depend on the availability of
tax and other revenues; economic, political, and demographic conditions within
the state; and the underlying fiscal condition of the state, its counties, and
its municipalities.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental, except that no investment
limitation of the Fund shall prevent the Fund from investing substantially all
of its assets (except for assets which are not considered "investment
securities" under the Investment Company Act of 1940, or assets exempted by the
SEC) in an open-end investment company with substantially the same investment
objectives):
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on margin
but may obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire publicly or
non-publicly issued Tennessee municipal securities or temporary investments or
enter into repurchase agreements, in accordance with its investment objective,
policies, and limitations or the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933, except for certain
restricted securities which meet the criteria for liquidity as established by
the Board of Trustees.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, or real estate limited
partnerships, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry or
in industrial development bonds or other securities the interest upon which is
paid from revenues of similar types of projects. However, the Fund may invest as
temporary investments more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, or assets exempted by the SEC) in an open-end investment
company with substantially the same investment objectives. Shareholders will be
notified before any material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days notice.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any combination
of them.
For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its net assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will determine the effective maturity of its investments, as
well as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.
FEDERATED MUNICIPAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Municipal Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Glen R. Johnson*
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University 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; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Tennessee Municipal Cash Trust:
Reep & Co., Pioneer Bank, Chattanooga, Tennessee, owned approximately 8,348,220
shares (37.16%); Trust Co. of Knoxville, Knoxville, Tennessee, owned
approximately 6,364,614 shares (28.33%); Sharp Market & Company, Home Federal
Bank FSB, Knoxville, Tennessee, owned approximately 4,518,400 shares (20.11%);
Chase Manhattan Bank, Brooklyn, New York, owned approximately 1,221,508 shares
(5.44%); and David & Co., Calvary Banking, Murfreeboro, Tennessee, owned
approximately 1,148,950 shares (5.11%).
As of November 24, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Tennessee Municipal Cash
Trust: Okeena & Co., First Citizens National Bank, Dyersburg, Tennessee, owned
approximately 4,123,438 shares (17.15%); BHC Securities, Inc., Philadelphia,
Pennsylvania, owned approximately 2,849,232 shares (11.85%); Derril and Margaret
Reeves, Brentwood, Tennessee, owned approximately 2,568,022 shares (10.68%);
Joseph C. and Sandra H. Hutts, Brentwood, Tennessee, owned approximately
1,846,760 shares (7.67%); Richard D. Wright, Brentwood, Tennessee, owned
approximately 1,448,543 shares (6.02%); and Commercial Bank & Trust, Paris,
Tennessee, owned approximately 1,218,470 shares (5.07%).
TRUSTEE COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Glen R. Johnson $0 $0 for the Trust and President and
Trustee 8 other investment companies in the
Fund Complex
James E. Dowd $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $4,443 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr. $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $4,038 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of 16
portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended October
31, 1997, and for period from May 22, 1996, (date of initial public investment)
through October 31, 1996, the adviser earned $221,951 and $71,830, respectively,
of which $221,951 and $71,830, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
year ended October 31, 1997, and for the period from May 22, 1996 (date of
initial public investment) through October 31, 1996, the Fund paid no brokerage
commissions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, and for the period from May 22, 1996, (date of initial public
investment) through October 31, 1996, the Administrators earned $154,970 and
$71,571, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Fund's
portfolio investments. The fee paid for this service is based upon the level of
the Fund's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on size, type, and number
of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Institutional Service Shares, the Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940.
Additionally, the Fund has adopted a Shareholder Services Agreement with respect
to Institutional Shares and Institutional Service Shares.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities may include, but are not limited to: marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Plan, the Trustees expect that the Fund will be able to achieve
a more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives. By identifying potential investors
whose needs are served by the Fund's objectives, and properly servicing these
accounts, the Fund may be able to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended October 31, 1997, no payments were made pursuant to
the Plan for Institutional Service Shares. In addition, for the fiscal year
ended October 31, 1997, the Fund paid shareholder service fees in the amounts of
$45,168 for Institutional Shares, none of which was paid to financial
institutions, and $65,858 for Institutional Service Shares, all of which was
paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that further payments should be in kind. In such cases, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
instruments valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable. Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders who sell these securities could receive
less than the redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90% of its
gross income from dividends, interest, and gains from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months; invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
For the seven-day period ended October 31, 1997, the yield for Institutional
Shares and Institutional Service Shares were 3.46% and 3.21%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
For the seven-day period ended October 31, 1997, the effective yield for
Institutional Shares and Institutional Service Shares were 3.52% and 3.26%,
respectively.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming 45.60% tax rate (the maximum combined effective
federal and state rates for individuals) and assuming that the income is 100%
tax exempt.
For the seven-day period ended October 31, 1997, the tax-equivalent yield for
Institutional Shares and Institutional Service Shares were 6.36% and 5.90%,
respectively.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment can
be an attractive choice for investors, particularly in times of narrow spreads
between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF TENNESSEE
FEDERAL INCOME TAX
BRACKET: 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- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00% 2.53% 3.03% 3.17% 3.45% 3.68%
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00% 3.80% 4.55% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.56% 6.03% 6.43%
4.00% 5.06% 6.06% 6.35% 6.90% 7.35%
4.50% 5.70% 6.82% 7.14% 7.76% 8.27%
5.00% 6.33% 7.58% 7.94% 8.62% 9.19%
5.50% 6.96% 8.33% 8.73% 9.48% 10.11%
6.00% 7.59% 9.09% 9.52% 10.34% 11.03%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
For the one-year period ended October 31, 1997, and for the period from May 22,
1996 (date of initial public investment) through October 31, 1996, the average
annual total returns were 3.47% and 3.51%, respectively, for Institutional
Shares, and were 3.21% and 3.26%, respectively, for Institutional Service
Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
* Lipper Analytical Services, Inc., ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
* 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.
* Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1996, Federated Investors managed more than $50.3 billion in assets across 50
money market funds, including 18 government, 11 prime, and 21 municipal with
assets approximating $28.0 billion, $12.8 billion and $9.5 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's Ratings Group (S&P) note rating reflects the liquidity
concerns and market access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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, 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.
